Food Price Outlook, 2018
This page provides the following information for February 2018:
- Consumer Price Index (CPI) for Food (not seasonally adjusted)
- Producer Price Index (PPI) for Food (not seasonally adjusted)
The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, rose 0.5 percent from January to February 2018 and is 2.2 percent above the February 2017 level. The CPI for all food was flat from January to February, and food prices were 1.4 percent higher than the February 2017 level. The degree of food price inflation varies depending on whether the food was purchased for consumption away from home or at home.
- The food-away-from-home (restaurant purchases) CPI rose 0.2 percent in February and is 2.6 percent higher than February 2017; and
- The food-at-home (grocery store or supermarket food items) CPI was down 0.3 percent from January to February but is 0.5 percent higher than last February.
Food-at-home prices and food-away-from-home prices have recently diverged. Restaurant prices have been rising consistently month-over-month due, in part, to differences in the cost structure of restaurants versus supermarkets or grocery stores. Prices at food-at-home outlets have posted lower year-over-year price increases. Restaurant prices primarily comprise labor and rental costs with only a small portion going toward food. For this reason, decreasing farm-level and wholesale food prices have had less of an impact on restaurant menu prices.
ERS revises its food price forecasts if the conditions (such as the feed grain crop outlook or weather-related crop conditions) on which they are based change significantly.
In 2018, retail food prices are expected to rise between 0.5 to 1.5 percent, which is still below the historical average of 2.1 percent. While fats and oils, fresh vegetables, pork, and processed fruits and vegetables could potentially decline in price, prices for beef and veal, poultry, eggs, and dairy are expected to increase. Due to deflation in 2016 and 2017, expected price increases would still leave overall price levels in 2018 lower than in 2015. These forecasts are based on an assumption of normal weather conditions throughout the remainder of the year; however, severe weather or other unforeseen events could potentially drive up food prices beyond the current forecasts.
Changes to Food Category CPI Forecasts
The food-at-home CPI is an average of individual food CPIs, weighted by their relative importance or share of consumer expenditures.
In February, pork prices fell 0.7 percent from the previous month, but prices are 1.7 percent higher than in February 2017. Lower beef prices are most likely adding pressure to lower pork prices. Although USDA forecasted a 4.9-percent increase in pork production in 2017, strong consumer demand for pork (particularly for cuts such as bacon) held retail prices above 2016 prices. In 2018, pork prices are expected to decline between 1.0 and 0.0 percent.
Egg prices increased 2.5 percent from January to February and are 10.5 percent above February 2017 levels. Retail egg prices are among the most volatile retail food prices, as they can be affected by seasonal demand. In 2017, more egg-laying birds and an increased number of eggs per hen placed downward pressure on prices. Recent price surges at the farm and wholesale level may indicate that retail egg prices will continue to rise over the next several months. Egg prices are expected to increase 3.0 to 4.0 percent in 2018.
Dairy product prices fell 0.7 percent from January to February and are 1.9 percent lower than February 2017 prices. Retail milk prices decreased 0.2 percent, cheese and related product prices fell 1.0 percent, and ice cream and related product prices decreased 2.0 percent from January to February. While milk production is expected to be strong in 2018, dairy exports have strengthened and are expected to continue rising, especially for products with high skim-solid content. Domestic demand for most dairy products is also expected to continue its recovery. ERS expects retail dairy prices to increase 0.5 to 1.5 percent in 2018.
Fats and oils prices rose 0.7 percent from January to February and are 1.6 percent higher than February 2017. While butter and margarine prices fell 1.2 percent, prices for salad dressing rose 1.6 percent, and prices for other fats and oils, including peanut butter, rose 1.3 percent in February. ERS expects prices for fats and oils to decrease 1.5 to 0.5 percent in 2018.
Prices for fresh fruits fell 0.9 percent from January to February and are up 4.0 percent compared with February 2017. While citrus, apple, and banana prices rose, prices for other fresh fruits fell 3.4 percent over the same time period. ERS expects prices to increase 2.5 to 3.5 percent in 2018. Fresh vegetable prices decreased from January to February, falling 2.1 percent, but are 2.1 percent higher than in February 2017. The decrease in fresh vegetable prices this month was primarily driven by an 8.7-percent decrease in the price for tomatoes. Fresh vegetable prices are expected to change between -0.5 to 0.5 percent in 2018. Factors, such as a stronger U.S. dollar, stable oil prices, and seasonal availability, have placed downward pressure on retail fresh produce prices.
Key Month-Over-Month Changes in the Food CPI
Beef and veal prices increased 0.1 percent from January to February and are 2.1 percent higher than this time last year. Greater year-over-year cattle placements in feedlots in the fourth quarter of 2017 indicate that the number of cattle outside of feedlots available for placement remains large. Thus, the forecast is higher for commercial beef production in 2018 due to slightly higher expected carcass weights combined with more cattle being put on the market and greater expected slaughter. Although cattle prices have been stronger than previously expected in late 2017, prices throughout the cattle and beef complex in 2018 are likely to remain below levels in 2017. Beef and veal prices are expected to rebound in 2018, increasing by 0.5 to 1.5 percent.
Prices for poultry rose 0.4 percent from January to February and are 1.3 percent higher than last year. While prices may increase at the retail level, price increases are still expected to be lower than the 20-year historical average of 2.0 percent. Poultry prices are expected to increase an additional 1.5 to 2.5 percent in 2018.
In February, prices for cereals and bakery products decreased 0.4 percent compared with the previous month and are 0.2 percent lower than they were in February 2017. While prices for pasta, rice, cornmeal, and flour increased from January to February, prices for breakfast cereal decreased 1.5 percent and bakery products prices fell 0.5 percent. ERS expects prices to increase 0.5 to 1.5 percent in 2018.
Prices for nonalcoholic beverages were flat from January to February and are 1.0 percent lower than February 2017. Carbonated beverage prices increased 1.5 percent from January to February, and prices for coffee fell 0.2 percent over the same period. Nonalcoholic beverage prices are expected to increase 0.0 to 1.0 percent in 2018.
Other foods, the largest consumer food spending category, rose 0.3 percent from January to February, and this category is 0.2 higher than the same time last year. While prices for frozen and freeze-dried prepared foods remained flat, soup prices rose 0.9 percent and snacks increased 0.6 percent from January to February. ERS predicts other food prices to rise 0.25 to 1.25 percent in 2018.
The Producer Price Index (PPI) is similar to the CPI in that it measures price changes over time. However, instead of measuring changes in retail prices, the PPI measures the average change in prices paid to domestic producers for their output. The PPI collects data for nearly every industry in the goods-producing sector of the economy. Of particular interest to food markets are three major PPI commodity groups—unprocessed foodstuffs and feedstuffs (formerly called crude foodstuffs and feedstuffs), processed foods and feeds (formerly called intermediate foods and feeds), and finished consumer foods. These groups give a general sense of price movements across the various stages of production in the U.S. food supply chain.
The intermediate and final demand PPIs—measures of changes in farm and wholesale prices—are typically far more volatile than their counterparts in the CPI. Price volatility decreases as products move from the farm to the wholesale sector to the retail sector. Due to multiple stages of processing in U.S. food systems, the CPI typically lags movements in the PPI. Examining the PPI is thus a useful tool in understanding what may happen to the CPI in the near future.
ERS does not currently forecast industry-level PPIs for unprocessed, processed, and finished foods and feeds, but these have historically shown a strong correlation with the all-food and food-at-home CPIs. While prices for unprocessed foods and feeds rose 2.0 percent and prices for processed foods and feeds rose 1.2 percent from January to February, prices for finished consumer foods fell 0.8 percent over the same period. Rising prices at these earlier stages of production may indicate that prices could begin to increase at the retail level.
Inflationary pressures lessened for farm-level cattle and wholesale beef prices in 2017. In February, cattle prices increased 8.6 percent and are up 7.5 percent since this time last year. Wholesale beef prices also increased in February, rising 3.2 percent, and are up 10.1 percent from the previous year. Farm-level cattle prices are expected to decrease an additional 4.0 to 3.0 percent in 2018. Wholesale beef prices are expected to decrease 3.0 to 2.0 percent in 2018.
Wholesale pork prices fell 5.2 percent from January to February and are 2.8 percent lower than this time last year. Wholesale pork prices are expected to decrease 5.0 to 4.0 percent in 2018.
Prices for farm-level eggs increased 34.3 percent from January to February. Price levels are 119.6 percent higher than February 2017 levels. Egg prices are among the most volatile of food prices, typically peaking in the fourth quarter of the year and then falling in the first quarter of the new year. Farm-level egg prices are expected to increase an additional 10.0 to 11.0 percent in 2018.
Farm-level soybean prices increased 5.5 percent from January to February but are 2.7 percent below the February 2017 price level. Wholesale fats and oils prices increased on the month, rising 0.4 percent in February, and are 1.3 percent higher than February 2017 price levels. Farm-level soybean prices are expected to rise 3.5 to 4.5 percent in 2018. Prices for wholesale fats and oils are expected to increase 0.0 to 1.0 percent in 2018.
Farm-level fruit prices fell 4.5 percent in February but are 2.9 percent higher than in February 2017. Farm-level vegetable prices also decreased in February, falling 27.1 percent, and prices are 15.9 percent lower than they were this time last year. Farm-level fruit prices are expected to decrease 3.0 to 2.0 percent in 2018. Farm-level vegetable prices are expected to decrease 8.0 to 7.0 percent in 2018.
Farm-level wheat prices rose 5.4 percent from January to February and are 13.0 percent higher than they were in February 2017. However, prices for wholesale wheat flour decreased, falling 1.0 percent from January to February, and prices were 2.0 percent higher than in February 2017. Farm-level wheat prices are expected to rise an additional 6.0 to 7.0 percent in 2018, but wholesale wheat flour prices are expected to decline 3.0 to 2.0 percent in 2018.