Retail Food Price Inflation at All Time Low

January 19, 2011

Retail food price inflation at 44-year low in 2010 but 2011 outlook calls for higher prices

On the heels of food-at-home price inflation of just 0.5% in 2009, the annualized rate was even lower in 2010, at 0.3%, according to the latest report from the Food Institute which analyzed government’s final 2010 Consumer Price Index report. That’s the smallest rise in food prices since 1967 when prices actually declined from prior year levels.

Competition among retailers for their share of shopper’s stomachs remained fierce right through New Year’s Eve. Strong promotions and a hesitancy among supermarket operators to raise prices tempered inflation. During December, retail prices did rise 0.2% from the prior month – only a fraction of the 1.1% monthly rise in wholesale food prices as reported in the government’s Producer Price Index.

Retailers continued to absorb the lion’s share of increases they are encountering at the wholesale level. And December marked the 15th consecutive month that wholesale price changes versus a year earlier exceeded those at retail. The gap between the two did narrow again during the month -- with retail food prices expected to rise at least in the 3% to 4% range this year, The Food Institute expects to see a further narrowing of that gap. However, The Food Institute cautions that if wholesale food prices increases expand significantly, the gap could widen again even if retail price advances are forthcoming.
Driving those increases at the wholesale level will likely be higher meat prices as producers pass along rising feed prices.

During December, beef and pork prices at retail actually declined from November although wholesale prices advanced. Even so, at year end, both beef and pork retail prices were still up over 6% from a year earlier. Naturally, higher prices for those center of the plate items would likely push the overall food-at-home, or retail, price index higher as they make up about 15% of the government’s market basket and almost one-fifth when poultry is included.

The Food Institute will be looking to see how this will all play out this year in The Food Institute Report.