Food Price Outlook, 2013-14
This page provides the following information for January 2014:
Consumer Price Index (CPI) for Food (not seasonally adjusted)
The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, rose 0.4 percent from December 2013 to January 2014 and is 1.6 percent above the January 2013 level. The CPI for all food increased 0.4 percent from December 2013 to January 2014, increased 0.1 percent from November to December 2013, and is now 1.1 percent above the January 2013 level.
- The food-at-home (grocery store food items) CPI was up 0.7 percent in January and is up 0.5 percent from last January. The food-at-home CPI increased 0.9 percent from 2012 to 2013—one of the smallest year-over-year increases in decades; and
- The food-away-from-home (restaurant purchases) CPI increased 0.1 percent in January and is up 2 percent from last January.
ERS revises its food price forecasts if the conditions (such as the feed grain crop outlook or weather-related crop conditions) on which they are based change significantly. Despite lingering commodity price effects from the severe 2012 drought in the Midwest, retail food prices were flat in 2013. Several agricultural commodity prices, particularly sugar and coffee, decreased in 2013. Fuel prices were moderate, and exports decreased for several major U.S. commodities. Relative to 2012, prices rose considerably for poultry, eggs, fish, and fresh vegetables; however, prices fell for nonalcoholic beverages, sugar and sweets, fats and oils, and other meats. For the remaining food categories, prices were mostly unchanged. From January to December 2013, average supermarket prices fell by 0.2 percent.
Looking ahead to 2014, ERS forecasts that food price inflation will return to a range closer to the historical norm. Inflationary pressures are expected to be moderate, given the outlook for commodity prices, animal inventories, and ongoing export trends. Retailer margins, having contracted since the drought, may expand in 2014 if input prices rise, which should contribute to inflation. The food, food-at-home, and food-away-from-home CPIs are expected to increase 2.5 to 3.5 percent over 2013 levels. This forecast is based on an assumption of normal weather conditions; however, severe weather events could potentially drive up food prices beyond the current forecasts. In particular, the ongoing drought in California could potentially have large and lasting effects on fruit, vegetable, dairy, and egg prices.
There are no changes to the CPI forecasts this month. See Changes in Food Price Indexes, 2012 through 2014 Excel icon (16x16) .
Key Month-Over-Month Changes in the Food CPI
The food-at-home CPI is an average of individual food CPIs, weighted by their relative importance or share of consumer expenditures. In the past month, the food-at-home CPI increased by 0.7 percent—the largest monthly increase since January 2012 (also 0.7 percent); this indicates that prices in most food categories rose. Fresh fruit prices rose by 1 percent, and fresh vegetable prices rose by 1.5 percent; however, these increases are not attributable to the drought in California. In the case of fruit, the price increase is due mostly to unusually cold winter at the end of 2013 that reduced supplies from Florida and elsewhere in the southeastern United States. Fresh vegetable prices were driven largely by potato prices, which are primarily grown outside of California; potato prices rose 5.8 percent in January due mostly to seasonality. Fish and seafood prices rose 2.2 percent in January and are 6 percent above the January 2013 level. ERS will monitor fish prices closely in the coming months to see whether this indicates a longer-term rise in prices or merely reflects a sharp comparison with prices from one year ago, which followed several months of price decreases.
Prices for eggs fell 1.1 percent in January and are 6.1 percent above last year’s level. Egg prices are highly seasonal and are among the most volatile price series that ERS forecasts. Beef and veal prices fell 0.1 percent in January but remain 1.8 percent above last January’s level. Many retail beef prices are at or near record, inflation-adjusted levels. Dairy prices remain 0.4 percent below the January 2013 level, although dairy prices had increased 0.5 percent last month. Fluid milk prices increased another 0.9 percent last month, due in part to a strong international demand, suggesting that the dairy CPI is poised to increase in the first half of 2014.
Producer Price Index (PPI) for Food (not seasonally adjusted)
The Producer Price Index (PPI) is similar to the CPI in that it measures price changes over time; however, instead of measuring changes in retail prices, the PPI measures the average change in prices paid to domestic producers for their output. The PPI collects data for nearly every industry in the goods-producing sector of the economy. Of particular interest to food markets are three major PPI commodity groups—crude foodstuffs and feedstuffs, intermediate foods and feeds, and finished consumer foods. These groups give a general sense of price movements across the various stages of production in the U.S. food supply chain.
The stage-of-processing PPIs—measures of changes in farm and wholesale prices—are typically far more volatile than their counterparts in the CPI. Price volatility decreases as products move from the farm to the wholesale sector to the retail sector. Due to multiple stages of processing in U.S. food supply systems, the CPI typically lags movements in the PPI. Examining the PPI is thus a useful tool in understanding what may happen to the CPI in the near future.
ERS does not currently forecast industry-level PPIs for crude, intermediate, and finished foods and feeds, but these have historically shown a strong correlation with the all-food and food-at-home CPIs. Crude foods and feeds posted a monthly increase of 3.6 percent from December 2013 to January 2014, and intermediate foods and feeds posted a monthly increase of 1.4 percent. Finished consumer foods were up 0.6 percent from December 2013 to January 2014. The direction of these indices was mixed for the past several months, and retail food prices may accordingly be flat or even decrease over the first quarter of 2014. However, increases in all three of these industry-level PPIs, particularly if sustained, suggest that retail food price inflation is poised to accelerate.
The farm price for cattle increased 7.5 percent in January, while wholesale beef prices rose 5.1 percent. These changes are consistent with reports that unusually cold weather across the U.S. in late 2013 disrupted cattle flows to feedlots and increased production costs for ranchers. Farm-level vegetable prices rose 6.9 percent last month. As seen in changes in the CPI, these changes mostly reflect seasonality and are not related to the California drought. However, it is clear that the drought could potentially add pressure to prices already on the rise. Farm egg prices fell 28.1 percent on the month, underscoring the high volatility of this food category. The decrease in the farm price of eggs is due, in part, to seasonality, higher yields, and lower feed costs in the beginning of 2014. Usually such sharp changes in eggs prices are quickly countered by changes in the opposite direction. ERS will closely monitor eggs prices to assess the situation and to see if adjustments to the forecast are needed.
See Changes in Producer Price Indexes, 2012 through 2014 Excel icon (16x16) .