Trips to the grocery store will cost consumers more and more as food inflation continues to rise. There are many reasons for this, including the war in Ukraine, shipping costs, and higher costs associated with the production of food items, including wages. How much have food prices risen in the past 12 months and how does this compare to general inflation?
The Bureau of Labor Statistics reported food inflation has risen at a faster rate than the broader Consumer Price Index over the previous 12 months. General inflation – as measured by CPI-U, which covers all urban areas – rose 3.2% for the 12-month period ending in July, while the cost of food rose 4.9% during the same period. Which food items rose the most and why? Let’s start with grain products.
Ukraine is among the world’s top producers and exporters of grains and oilseeds, both of which were negatively impacted when Russia invaded the country. This is a chief reason cereals and other grain products rose as much as 10.7% in the past year. Also rising substantially were frozen foods such as fruits and vegetables (11.8%) and noncarbonated juices and drinks (16.3%). Candy and chewing gum rose by 11.1% and the price of margarine increased by 11.3%. The following chart contains several staple food items and their percentage increase in the past 12 months.
On the far right, note how the CPI-U rose 3.2%, and the cost of all food items rose at a faster rate of 4.9%. Apples led all fresh fruit price increases, rising 7.5%. Why? It’s hard to know for sure, but since apples are harvested in the fall, the ones we are consuming right now might have come from the Southern Hemisphere. With higher oil prices and labor shortages, the cost of shipping likely played a role in those higher costs. Interestingly, the price of processed foods rose at a faster rate, perhaps due to a lack of workers.
Even so, the Covid-19 rebound is the most significant reason for rising prices. As we emerged from the pandemic, supply chains were severely disrupted and coupled with the glut of fiscal stimulus from governments around the world, demand remained strong. This supply/demand imbalance was the primary reason for the current round of inflation. This is true, even though politicians continue to blame inflation on their rival party.
Some food prices fell during the past 12 months, including bacon (-10.7%); pork chops (-2.4%); pork roast, steaks, and ribs (-6.8%); chicken (-2.5%); eggs (-13.7%); and fresh whole milk (-4.5%). Prices for oranges and tangerines also fell (-3.6%), as did peanut butter (-1.7%).
How long will today’s inflation persist? Remember, it’s a global event, affecting many countries. Moreover, because America imports many food items, the cost of shipping, labor, and tariffs will continue to play an important role in what we pay for groceries. The federal government’s excessive spending, a.k.a. fiscal stimulus, continues to push prices higher, even if politicians suggest otherwise. Click here for a link to the Fed’s view on the role of fiscal stimulus and inflation. In short, there is too much demand relative to supply, which is the textbook definition of inflation.
What can you do to minimize the impact of inflation? I suppose you could eat a lot of citrus fruits, peanut butter (without bread), bacon and other pork, chicken, eggs, and wash it all down with a nice tall glass of fresh whole milk. But that wouldn’t provide a balanced diet.
As food prices head higher, it’s a safe bet the Fed will continue to tighten rates until inflation falls to its 2.0% target. Of course, if the federal government reduced spending, the Fed might not need to go to such extremes in raising rates and reducing the money supply.
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