Keep Food Inflation Talk In Perspective

Articles
December 24, 2009

Keep Food Inflation Talk In Perspective

With just a few weeks remaining in 2009, The Food Institute looks this week at predictions that food price inflation will return in 2010, noting that the anticipated rise in prices must be viewed with a bit of perspective.

With just a few weeks remaining in 2009, The Food Institute looks this week at predictions that food price inflation will return in 2010, noting that the anticipated rise in prices must be viewed with a bit of perspective.

For example, even though grocery prices as reflected by the Consumer Price Index for food-at-home are projected to increase 2.5% to 3.5% in 2010 by USDA, that increase is coming on the heels of what will likely be the smallest year over year increase in food prices in seventeen years, possibly less than 1%.

Taking a snapshot in time, The Food Institute looked at the food-at-home CPI for November which is USDA’s market basket of foods eaten at home, excluding restaurants and foodservice. This index was down 2.9% from the same month last year, which marked the first such decline since 1967 when Nixon was elected President – 42 years ago. It was also the largest decline reported since 1949, when Truman was in office. So keep in mind that any increase is coming off an extremely low base.

And in looking at some specific items, such as beef & veal – a center of the plate item, the Food Institute found the November price index was down 4% from the same month in 2008. That’s the largest such decline since 2002 and the largest such decline since 1976.

And dairy, which some forecasters see jumping sharply in price next year, was down 9% from November 2008 last month, marking the first decline since 2006 but by far the largest since way back in 1938 when it dropped more than 10%. Dairy prices have been extremely volatile in recent years however. Indeed, the price hike recorded in 2007 was the largest since 1973. Obviously, changes like those from year to year make the jobs of supermarket and dairy ingredient buyers extremely stressful.

And in the produce aisle, the price index for fresh fruits and vegetables was down 6% and was the largest such decline since 1961.

This is not to say that the upward trend in prices being forecast for 2010 will not impact grocery store operators and consumers alike, it certainly will. But when looking over a two to three year period, there will always be many peaks and valleys, but the overall effect in the past fifty years has been toward more moderate inflation. And as always, consumers, have many ways to deal with price hikes in certain categories – switching to lower priced alternatives, such as from beef to poultry, or buying down within a category such as purchasing chuck steak rather than sirloin. These shifts are not always easily factored into all of the economic data that is bantered about from year to year, but should be considered nonetheless.

What remains true in any year is that consumers will continue to eat. Exactly what we do not know, but they will have to eat something and at least for now, grocery stores are where most consumers buy those products.