Food Prices Heading Higher

Using wholesale food prices as an indicator of things to come on the retail side, The Food Institute projects that food-at-home price inflation will trend higher into the second quarter of this year.

Using wholesale food prices as an indicator of things to come on the retail side, The Food Institute projects that food-at-home price inflation will trend higher into the second quarter of this year. And, at this early date, this appears to coincide with USDA projections of 3% to 4% increases on an annualized basis for all of 2013.

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“Food prices are rising faster than overall inflation. Inflation is the great hidden tax, especially when it hits essentials like food. Core inflation is running at about 2%, but the U.S. Department of Agriculture predicts that food prices will be up 3%-4% in 2013. This will nip at Wal-Mart customers and Wal-Mart itself, which now gets half of its U.S. revenue from groceries. 

“Will Wal-Mart eat the inflation and hurt its profit, or will it pass it onto its customers and risk driving them away? Food inflation presents no good choices.”

Rich Karlgaard

Publisher of Forbes In The Wall Street Journal (Feb. 27)

Obviously, the above quote is a concern for all supermarket operators and other retailers of food as Rich Karlgaard, Forbes editor noted in a recent Wall Street Journal op-ed piece, not just Wal-Mart.

As the accompanying chart portrays, U.S. food retailers have been, and continue to be, extremely hesitant to pass along cost increases they have encountered at the wholesale level since the middle of 2012. And since this chart is based on data from the Bureau of Labor Statistics encompassing the entire nation, it is much more than just a problem for Wal-Mart. It has an impact on the entire U.S. grocery business.