Food Price Outlook, 2014-15
This page provides the following information for June 2014:
Consumer Price Index (CPI) for Food (not seasonally adjusted)
The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, rose 0.2 percent from May to June and is 2.1 percent above the June 2013 level. The CPI for all food was flat from May to June, increased 0.4 percent from April to May, and is now 2.3 percent above the June 2013 level.
- The food-at-home (grocery store or supermarket food items) CPI was down 0.1 percent in June and is up 2.4 percent from last June. 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 0.2 percent in June and is up 2.2 percent from last June.
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. Prices for several agricultural commodities, 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.
In 2014, ERS forecasts that food price inflation will return to a range closer to the historical norm; since 1990, grocery store prices have risen by an average of 2.8 percent per year. The food-at-home CPI has already increased more in the first 6 months of 2014 than it did in all of 2013; however, given its current trajectory, it is on track for normal annual inflation. 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 2012 drought, may expand in 2014 if input prices rise, which should contribute to inflation. As a result, the food, food-at-home, and food-away-from-home CPIs are expected to increase 2.5 to 3.5 percent over 2013 levels.
Looking ahead to 2015, ERS predicts that supermarket (food-at-home) prices will see normal to slightly lower than average food price inflation, increasing 2.0 to 3.0 percent. Meat prices will likely continue to experience the effects of the Texas/Oklahoma drought and Porcine Epidemic Diarrhea virus (PEDv) in the immediate future, as farmers' decisions on calving and herd sizes based on current conditions are felt down the line due to the 6- to 18- month production process. 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, and drought conditions in Texas and Oklahoma could drive beef prices up even further.
Changes to Food Category CPI Forecasts
The CPI for pork continued to rise in June, increasing 0.5 percent on the month. Pork prices are now up 12 percent year-over-year. The increase in pork is partially due to the PED virus, as well as a higher cost of pork imports from European producers. However, the weights of slaughtered hogs have increased in 2014, slightly offsetting smaller herd sizes. ERS now predicts pork prices to rise 5.5 to 6.5 percent in 2014 and 3.0 to 4.0 percent in 2015. As a result of higher pork price inflation, ERS has also increased its 2014 estimates for the meats, poultry, and fish category to 3.5 to 4.5 percent, and the meats category to 4.0 to 5.0 percent.
Fish and seafood prices rose 0.3 percent from May to June and are up 7.2 percent since this time last year. In general, fish and seafood prices have been climbing due to decreased supplies of certain species and increased consumer demand, as other meats have become more expensive. ERS revised its forecast upward for fish and seafood in 2014 to 3.5 to 4.5 percent. In 2015, the fish and seafood category is expected to increase 2.5 to 3.5 percent.
See Changes in Food Price Indexes, 2012 through 2015 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.
Beef and veal prices continued to rise, increasing 0.1 percent from May to June, and the beef and veal CPI is up 10.4 percent year-over-year. The U.S. cattle inventory continued to decrease in recent months and is currently at its lowest level since 1951. However, beef imports are up, which has slightly offset some of the decline in the U.S. supply. The drought in Texas and Oklahoma has worsened somewhat in the last month, providing further complications for the beef production industry. Most retail beef prices, on average, are at record highs, even after adjusting for inflation. ERS predicts beef and veal prices will increase 5.5 to 6.5 percent in 2014 and 3.0 to 4.0 percent in 2015.
Fresh fruit prices fell 4.1 percent in June but remain up 5.8 percent since June 2013. The decrease in June was primarily driven by a decrease in the price for citrus fruit. While the production of citrus is still up substantially from last year, consumer demand has shifted due to seasonal patterns. Summer tends to reduce demand for citrus products, partially because of the variety of orange—the Valencia—in season. Lime prices have also declined, as the Mexican lime harvest yields have increased. In addition, imports for most citrus fruit are up since the previous summer. ERS expects prices for fresh fruit to increase 5.0 to 6.0 percent in 2014 and 2.5 to 3.5 percent in 2015.
Fresh vegetable prices increased 1.8 percent from May to June and are up 2 percent since June of 2013. Due to ongoing drought conditions in California, produce prices have recently come under a great deal of scrutiny. In June, lettuce prices increased 5.7 percent since May. While the drought may be a factor in this price increase, the U.S. demand for lettuce has increased both globally and domestically in the past month. Additionally, lettuce imports are down, but exports have been increasing. Overall, the California drought has not yet had a discernible impact on national prices for fruit or vegetables. Fresh vegetable prices are expected to increase 2.0 to 3.0 percent in 2014.
Prices have continued to fall or remain relatively flat in June for several processed or shelf-stable foods. It appears that supermarkets are maintaining minimal price inflation on packaged food products, possibly in an effort to keep prices competitive in light of rising cost pressures for most perishable items. Nonalcoholic beverage prices were flat in June and are down 1 percent since June 2013. Cereal and bakery product prices were down 0.2 percent from May to June and are 0.3 percent lower than prices in June of 2013. The other foods category also remained flat in June but is up 0.4 percent on the year.
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 decrease of 2.1 percent from May to June. However, from February to April, this category experienced the largest monthly increase since 1980, and therefore, prices are currently high. Intermediate foods and feeds increased 0.1 percent in June, and finished consumer foods were up 0.6 percent. Taken together, these price changes suggest that retail food price inflation may decelerate in the coming months.
Inflation rates for farm-level cattle and wholesale beef have remained high in 2014, as U.S. cattle herd sizes remain low. In June, cattle prices rose 2 percent and are up 23.5 percent since this time last year. Wholesale beef prices also saw increases, rising 3.6 percent on the month and 16 percent year-over-year. ERS now predicts farm-level cattle prices to increase in 2014 by 12.0 to 13.0 percent and wholesale beef prices to increase by 8.0 to 9.0 over the same time period. Wholesale pork prices rose, increasing 2.7 percent in June and are up 28.8 percent since this time last year. Hog prices are rising as U.S. supplies decrease due to smaller litter rates caused by the PEDv. ERS now predicts that wholesale pork prices will increase 10.0 to 11.0 percent in 2014.
The ongoing drought in California has raised concerns about rising produce prices at supermarkets or grocery stores. Farm-level fruit prices rose 1.7 percent, while farm vegetable prices increased 7.8 percent. In the case of vegetables, it is too soon to attribute this increase to the drought, as it may reflect seasonality and an increase in farm commodity exports. Nevertheless, these changes suggest that retail produce prices could continue to see increases in the coming months.
See Changes in Producer Price Indexes, 2012 through 2015 Excel icon (16x16) .