Food price outlook, 2011 and 2012

Oct 29, 2011
by WLJ

For 2011, the final numbers from the Consumer Price Index (CPI) for all food is projected to increase 3.5 to 4.5 percent. Food-at-home (grocery store) prices are forecast to rise 4 to 5 percent, while food-away-fromhome (restaurant) prices are forecast to increase 3 to 4 percent. Although food price inflation was relatively weak for most of 2009 and 2010, cost pressures on wholesale and retail food prices due to higher food commodity and energy prices, along with strengthening global food demand, have pushed inflation projection numbers upward for 2011.

The all-food CPI increased 0.8 percent between 2009 and 2010, the lowest food inflation rate since 1962. Food-at-home prices increased by 0.3 percent—the lowest annual increase since 1967—with cereal and bakery product prices declining 0.8 percent and processed fruit and vegetable prices dropping 1.3 percent. Foodaway-from-home prices rose 1.3 percent in 2010, the lowest annual increase for restaurant prices since 1955.

For 2012, food price inflation is expected to abate from 2011 levels but is projected to be slightly above the historical average for the past two decades. The all-food CPI is projected to increase 2.5 to 3.5 percent over 2011 levels, with foodat-home prices increasing 3 to 4 percent and food-awayfrom-home prices increasing 2 to 3 percent. While many inflationary pressures that drove prices up in 2011 are not expected to intensify and may even decrease in 2012, retailers have been slow to pass on cost increases to date. Price levels in 2012 will hinge significantly on several macroeconomic factors such as weather conditions, fuel prices, and the value of the U.S. dollar.

The CPI for all food increased 0.4 percent from August to Septtember 2011, increased 0.5 percent from July to August. 2011, and is now 4.7 percent above the September 2010 level. The food-at-home CPI increased 0.6 percent in September 2011 and is up 6.3 percent from last September, while the food-away-from-home index was up 0.2 percent in September 2011 and is 2.6 percent above last September. Food commodity and energy price increases over the past year, combined with a weak U.S. dollar, have caused most of the grocery store price increases observed in 2011. The all-items CPI was up 0.2 percent in September and is 3.9 percent above the September 2010 level.

Beef prices were unchanged in September and are 10.1 percent above last September, with steak prices up 8.8 percent and ground beef prices up 11.5 percent. Pork prices increased 1.5 percent in September and are 7.5 percent above last September’s level. Poultry prices increased 0.7 percent in September and are 3 percent above prices last year at this time, with chicken prices up 1.7 percent and other poultry prices (including turkey) up 7.8 percent.

Due to higher input costs, beef and pork prices remain significantly higher than in 2010. The beef and pork industries also downsized their inventories during the high price inflation of 2007- 08, and the supply of these commodities remains low relative to demand.

Egg prices increased 6 percent in September 2011; egg prices remain high and are now 11.1 percent above the September 2010 level. The inventory of table egglaying hens in the U.S. decreased for five of the first seven months of 2011, and USDA’s Economic Research Service is closely monitoring egg production for the 2012 price outlook.

Dairy prices were up 1.2 percent from August to September 2011, compared with a 0.9 percent increase from July to August 2011. Dairy prices are now 10.2 percent above the September 2010 level. Within the dairy category, prices changed as follows in September: milk prices were up 0.7 percent and are 13.1 percent above last September’s prices; cheese prices were up 1.9 percent and are 10.2 percent above last September’s level; ice cream and related product prices were up 2.3 percent and are 10.3 percent above last September’s level; and butter prices decreased 1.2 percent this month and are 9.2 percent above last September. In 2010, dairy prices were up only 1.1 percent from 2009 (following a 6.4 percent decline from 2008 to 2009).

Due to higher projected prices for farm milk in 2011, ERS forecasts that retail dairy prices will increase 5 to 6 percent in 2011. — WLJ