Food Price Outlook, 2015-2016
This page provides the following information for July 2015:
Consumer Price Index (CPI) for Food (not seasonally adjusted)
The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, was flat from June to July and is 0.2 percent higher than the July 2014 level. However, the CPI for all food rose 0.1 percent from June to July and is now 1.6 percent above the July 2014 level. The degree of food price inflation varies depending on whether the food was purchased for consumption away from home or at home.
- The food-away-from-home (restaurant purchases) CPI was flat in July but is up 2.7 percent year-over-year; and
- The food-at-home (grocery store or supermarket food items) CPI rose 0.2 percent in July and is 0.9 percent higher than last July.
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 the effects of the drought in the Southwest and California, retail food price inflation rates approached the 20-year historical average of 2.6 percent per year. In 2014, the food-at-home CPI increased 2.4 percent. While overall food price inflation was close to its 20-year historical average, inflation across food categories covered a broad spectrum. The most notable annual inflation increases were seen in the perimeter of the grocery store—retail beef and veal, pork, eggs, fish and seafood, dairy, and fresh fruit experienced above-average price increases. Alternatively, items in the center aisles of grocery stores experienced below-average inflation or, in some instances, even deflation. In 2014, prices fell for fresh vegetables, sugars and sweets, and nonalcoholic beverages.
Looking ahead to 2015, ERS predicts that supermarket (food-at-home) prices will see slightly-lower-than-average food price inflation, increasing 1.75 to 2.75 percent. However, food price inflation is expected to vary by category. Beef and veal prices will likely continue to experience the effects of the Texas/Oklahoma drought, as farmers' decisions on calving and herd sizes are felt down the line due to the 16- to 18-month production process. In contrast, the effects of Porcine Epidemic Diarrhea virus (PEDv) on the hog industry are subsiding, and the hog industry has started to expand in 2015, resulting in a decrease in farm-level hog prices.
In 2016, ERS predicts supermarket prices to rise 2.0 to 3.0 percent—a rate of inflation that remains in line with the historical average. These forecasts are 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 have large and lasting effects on fruit, vegetable, dairy, and egg prices. Conversely, if oil prices continue to fall or remain low throughout 2015 and 2016, subsequent decreases in production and transportation costs may be passed on to the retail level.
Changes to Food Category CPI Forecasts
The food-at-home CPI is an average of individual food CPIs, weighted by their relative importance or share of consumer expenditures.
Despite the drought in California, fresh fruit prices fell 0.4 percent from June to July and are 4.4 percent lower than in July 2014. Fresh fruit prices are lower year-over-year due, in part, to the supply and price of imports. ERS expects prices for fresh fruit to increase -1.0 to 0.0 percent in 2015. Fresh vegetable prices also decreased in July, falling 1 percent over June levels. Fresh vegetable prices are down 1.1 percent since July 2014, resulting in an expectation for prices to increase 0.0 to 1.0 percent in 2015. This is not to say that the drought has had no impact on fresh produce prices—other factors, such as the strength of the U.S. dollar and low oil prices, have placed downward pressure on retail fruit and vegetable prices.
See Changes in Food Price Indexes, 2013 through 2016 Excel icon (16x16) .
Key Month-Over-Month Changes in the Food CPI
Beef and veal prices decreased 0.4 percent from June to July but are still 10 percent higher year-over-year. Overall, prices remain high as the U.S. cattle inventory recovers from historically low levels. Recent rains in the Southern Plains and Southwest have improved pasture conditions in the short term. In addition, lower feed prices allow cattle producers to feed cattle longer and to hold cattle for herd expansion. ERS predicts beef and veal prices will increase 5.5 to 6.5 percent in 2015 and 2.5 to 3.5 percent in 2016.
In July, pork prices rose, increasing 1.1 percent from the previous month, but prices have still fallen 6.7 percent year-over-year. In 2014, retail pork inflation was largely due to the effects of PEDv, which had reduced the autumn number of hogs ready for production. In 2015, however, hog prices are falling below 2014 figures, as there are signs of industry expansion and a lower volume of pork exports due to the strength of the U.S. dollar. ERS predicts pork prices to fall 4.0 to 3.0 percent in 2015.
Prices for poultry declined by 0.4 percent from June to July and are 0.1 percent higher year-over-year. Partly due to an increase in broiler production, retail poultry price inflation has remained relatively low in 2015. Also, the Highly Pathogenic Avian Influenza (HPAI) has led countries to institute bans or partial bans on U.S. poultry exports, resulting in more chicken broilers remaining on the U.S. market which, in turn, places downward pressure on retail chicken prices. ERS predicts poultry price inflation to continue near the historical average in 2015 and forecasts poultry prices to increase 2.5 to 3.5 percent in both 2015 and 2016. Poultry prices are expected to increase an additional 2.5 to 3.5 percent in 2016.
After increasing 17.8 percent from May to June, egg prices increased an additional 2.6 percent from June to July and are now 24.9 percent above July 2014 levels. Retail egg prices are among the most volatile retail food prices, as they can be affected by seasonal demand. The recent upswing is partially due to the HPAI outbreak, which has decreased the table-egg-laying flocks in the Midwest and Pacific Northwest. ERS forecasts egg prices to increase 12.5 to 13.5 percent in 2015 and 2.5 to 3.5 percent in 2016.
In July, prices for dairy products have risen, increasing 0.8 percent from the previous month but remain 1.6 percent lower than they were in July 2014. Retail dairy prices have been falling in 2015, as the dairy market has seen strong production and slight declines in foreign and domestic demand. ERS predicts dairy product prices to increase 1.5 to 2.5 percent in 2015 and 2.0 to 3.0 percent in 2016.
Prices for fats and oils decreased 0.3 percent from June to July and are 2.3 percent lower than last July. The relatively low level of price inflation for fats and oils is primarily due to record-level oilseed production as well as increased import volume. ERS predicts fats and oils prices to increase -0.5 to 0.5 percent in 2015 and 1.5 to 2.5 percent in 2016.
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 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 decrease of 1.5 percent from June to July. Prices for intermediate foods and feeds also rose in July, increasing 0.9 percent. Prices for finished consumer foods fell in July by 0.5 percent month-over-month. The recent price decreases for commodities and foods at earlier stages of the food supply chain suggest that food prices at the retail level could continue to face upward pressure in the coming months.
Inflation rates for farm-level cattle and wholesale beef prices were high in 2014, as U.S. cattle herd sizes were at historically low levels. Inflationary pressures have lessened, however, and farm-level cattle and wholesale beef prices have started to deflate in 2015. In July, cattle prices decreased 2.4 percent and are down 3 percent since this time last year. Wholesale beef prices also declined, falling 1.9 percent on the month, but are now up 2.1 percent year-over-year. In 2015, ERS predicts farm-level cattle prices to rise 5.0 to 6.0 percent and wholesale beef prices to increase by 6.0 to 7.0 percent. As pasture and water conditions continue to improve in cattle-producing regions in the western half of the United States and feed prices remain low, more cattle have been reported on pasture lots. However, increases in beef production require time, as it takes roughly 16 to 18 months from birth until cattle are ready for market.
Wholesale pork prices decreased 1.2 percent from June to July; prices are now down 33 percent since this time last year, as the effects of PEDv are subsiding. Overall, pork production is higher, as litter sizes and hog inventories have recovered. ERS predicts that wholesale pork prices will decrease 15.0 to 14.0 percent in 2015 but rise 0.0 to 1.0 percent in 2016.
After rising 84.9 percent in June, prices for farm-level eggs decreased 21.3 percent from June to July; prices are now up 70.4 percent from July 2014 levels. Egg prices are among the most volatile of food prices, typically peaking in the fourth quarter of the year and then falling in the first quarter of the new year. Prices are also affected by HPAI, which has reduced the count of table-egg laying birds in many Midwestern and Pacific Northwestern States. ERS forecasts farm-level egg prices to increase 20.0 to 21.0 percent in 2015 and 10.0 to 11.0 percent in 2016.
Farm-level soybean prices rose 7.3 percent from June to July and are now 17 percent below the July 2014 level. Wholesale fats and oils prices increased on the month, rising 0.6 percent in July, but are now 5.2 percent lower than July 2014 levels. ERS predicts farm-level soybean prices to fall 14.0 to 13.0 percent in 2015. Prices for wholesale fats and oils are expected to decrease 1.0 to 0.0 percent in 2015.
The ongoing drought in California has raised concerns about rising produce prices at supermarkets or grocery stores. However, prices for both farm-level fruit and vegetables fell in July. Farm-level fruit prices decreased 1.2 percent in July, and farm-level vegetable prices fell 1.1 percent—an indication that retail produce prices could continue to decrease in the coming months. ERS now predicts farm-level fruit prices to decrease between 6.0 and 5.0 percent and vegetable prices to fall 5.0 to 4.0 percent in 2015. Prices are expected to rise again in 2016—fresh fruits by 1.5 to 2.5 percent and fresh vegetables by 1.0 to 2.0 percent.
See Changes in Producer Price Indexes, 2013 through 2016 Excel icon (16x16) .