USDA Sees Limited Retail Food Price Inflation for 2013. But Food Institute Chief Economist Not So Sure.

Retail food price inflation thus far in 2013 has been extremely low, at just one percent on an annualized basis in the first half notes The Food Institute while USDA’s ECONOMIC RESEARCH SERVICE (ERS) has now reduced its projection for all of 2013 to a range of 1.5% to 2.5% as a result.

Retail food price inflation thus far in 2013 has been extremely low, at just one percent on an annualized basis in the first half notes The Food Institute while USDA’s ECONOMIC RESEARCH SERVICE (ERS) has now reduced its projection for all of 2013 to a range of 1.5% to 2.5% as a result. Based on current conditions, ERS inflation this forecast means that prices are likely to increase less than in 2012, and that overall inflation is expected to be lower than the historical average for both indexes. 

Chief Economist for THE FOOD INSTITUTE, John Dunham of DUNHAM & ASSOCIATES, however, sees some potential for food prices at grocery stores to increase, commenting, "Recent data from the BUREAU OF LABOR STATISTICS counters USDA's tame forecast of food inflation. According to the BLS, while the price of finished food products is growing at about three percent, the price of commodity inputs is running at 10.4% percent. This means that weakness in the American economy is forcing workers and businesses to reduce their wages and profits as a percentage of final consumer prices. As the economy strengthens, workers and producers will begin to take more pricing actions suggesting that future food price inflation at the consumer level cannot remain tame. While it is difficult to predict exactly when this will happen, it will occur quickly."

For retailers, sales increases for 2013 have been tempered by the sluggish inflation rate. Indeed, The Food Institute recently reported grocery store sales in the first half rose just two percent, only one percent above the retail food inflation rate. Thus, any future increases in inflation at the retail level will boost their top-line results. At the same time, however, their costs have been increasing. 

According to ERS, the Consumer Price Indexes (CPI) for food, food-at-home, and food-away-from-home are expected to increase 2.5% to 3.5% over 2013 levels in 2014. This forecast is based on normal weather conditions; however, a resurgence of the drought in key agricultural areas or other severe weather events could potentially drive up food prices significantly.