Food Price Inflation Continues To Ease

Articles
May 24, 2012

Food Price Inflation Continues To Ease

Increases in retail food costs compared to a year ago slowed considerably in the first four months of 2012, and in April were only 3.3% higher than the same month a year earlier according to The Food Institute.

Increases in retail food costs compared to a year ago slowed considerably in the first four months of 2012, and in April were only 3.3% higher than the same month a year earlier according to The Food Institute. That’s the lowest inflation rate for retail food since February of 2011 and an indication that retailers have slowed down passing on higher costs they had been absorbing prior to last summer. In December 2011, retail prices were up 6% from a year earlier as retailers passed along advances on a variety of products they had hesitated on doing so in most of 2010 and the first half of 2011 due to a lack of growth in consumer income and fear of losing business to alternative retailers.

Unfortunately, the slowdown in inflation also means that dollar sales increases for many retailers will not benefit from those higher prices in future months. In the first quarter, sales at the nation’s grocery stores were up 4.8% to about $138 billion dollars but nearly 90% of that increase can be attributed to the accumulated 4.2% increase in prices during the same period.

Thus far into 2012, the only major category seeing food price deflation, however, is fresh produce, for which the Consumer Price index in April was down 4.1%.  And while this is always a volatile market, this year has been greater than usual. For example, in April, fresh vegetable prices were 32% lower than a year earlier after being down 51% in February – the largest year-over-year decline for any month since the government started keeping records back in 1948 according to Food Institute researchers.

In coming months, with record-high feed corn supplies on hand as reported in the May 14 FOOD INSTITUTE REPORT, corn prices are projected to fall about one-third from current levels. This will mean lower feed costs for pork and poultry producers as well. Thus, meat prices could move lower or at least increase less than anticipated as a result.

Now, as food inflation may be ending, major questions are emerging:
-    What’s the outlook for food pricing in the medium term, 24-36 months?
-    Will commodity cost declines ripple through manufacturer costs and then to retail?
-    How will traditional supermarkets be impacted?

The Food Institute will address such questions in an upcoming Webinar featuring Jim Hertel, Managing Partner, and Craig Rosenblum, Partner, both of Willard Bishop, moderated by Dr, John Stanton of Saint Joseph’s University on the Future of Food Retailing in a 1-hour webinar to be held June 20. They’ll dig into retailer strategies, identify specific actions Walmart and others are taking, and point out intended and unintended consequences of retailers’ actions. They’ll also point out winners and losers in the consumer spending turnaround and the effect this had on the larger food retailers. 

Go to The Food Institute www.foodinstitute.com to register.