Food Price Deflation Ends Nine Month Run

Articles
June 03, 2010

A number of important economic indicators for the food industry were released recently by the government that are generally positive for the industry overall, although not stellar.

A number of important economic indicators for the food industry were released recently by the government that are generally positive for the industry overall, although not stellar. The Food Institute has taken a look at these indicators in its weekly Food Institute Report and includes the following.  

The biggest news is that food price deflation has come to an end after nine months of the Consumer Price Index for food-at-home falling under prior year levels. During April this index was at exactly the same level as a year earlier and was up one-tenth of a percent from March. Of course on an annualized basis, prices were still 1% under 2009 levels but that will not last much longer if current trends continue and are projected to end the year up somewhere between 2.5% and 3.5%. The small April increase was due to an increase in the index for all of the major proteins - beef, pork, poultry and seafood. Other grocery store food group indices were mixed. 

And why does the Food Institute portend higher food price this year? That comes from a different government report, the Producer Price Index, which reflects prices at the wholesale level. The index for finished consumer goods during April was up 4.9% from a year earlier and has exceed prior year levels every month this year as well as last December. In March, the index was almost 7% higher than in 2009 but eased pretty substantially in April as the index for fresh and dry vegetables dropped 10.2% in a single month. Compared to a year ago, however, fresh fruit and vegetable indices were up by 17.3% and 33.3%, respectively. Center of the plate items, particularly beef, are advancing at a more rapid rate than other items. Beef prices were up almost 11% in April from a year ago. Pork prices, meanwhile, were up about 9% and turkey up 5.4%. And all of those advances are, or will be, reflected in higher prices at retail as well.

The gap between the wholesale and retail indices narrowed to 4.9% last month but remained in negative territory for retailers for the seventh consecutive month after peaking at a negative 7.5% in March. With retail prices on the rise, and wholesale advances slowing, perhaps retailers will start to see their price increases outpacing those at wholesale later this year for the first time since last September.

In other economic news, the Census Bureau reported that sales at the nation’s grocery stores rose just 1.1% from the same month last year during April, totaling $42.5 billion. That was the smallest such increase since January and well below the 5.3% jump in sales during March. 

During the first four months of 2010, grocery store registers rang up just under $170 billion in sales or 2.7% more than a year ago, and with food-at home inflation running at a negative 1.0% during the same period, that 2.7% figure is more positive than it appears notes the Food Institute.

For regular economic updates on the food industry be sure to check out the Food Institute Report at www.foodinstitute.com.