USDA: Food costs to remain on upward trajectory
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Food costs will continue to eat away at consumers’ pocketbooks this year.
USDA estimates food price inflation could increase another 8% this year after racing to its highest level last year (9.9%) since 1979.
“In the next year, we expect prices to continue to increase, although substantial uncertainty exists,” said Matthew MacLachlan, economist at USDA’s Food Economics Division.
Grocery purchases, or food at home, could experience the highest inflation this year at 8.6%, down from 11.4% in 2022. Meanwhile, prices of food away from home could increase 8.3% in 2023, up from 7.7% last year.
“We’re predicting food-at-home prices will continue to increase, albeit at a slower rate than last year. Food-at-home prices at this level (in 2022) had not been observed since 1974,” MacLachlan said at USDA’s 99th annual Ag Outlook Forum.
The higher prices will continue to affect pretty much anything shoppers put in their carts or order out. No segment of the food market will be spared from historically high inflation again this year, according to USDA.
“This is a very high level of inflation. It isn’t attributable to any category, but rather it’s driven by higher prices across the board,” MacLachlan said. “Prices for all food categories increased at least 5% in 2022.”
After posting some of the highest price increases in 2020-21, inflation for beef/veal and pork eased to 5.3% last year. Egg prices posted the highest gain at 32% in 2022.
Even with the higher costs, food expenditures remain about the same portion of spending (12%) for U.S. consumers compared to other years when food prices increased closer to the historical rate around 2%.
“This roughly aligns with past expenditures,” MacLachlan said. “But this represents the ‘average’ household and not necessarily those with low income, which food is a much larger share of their expenditures.”
The higher prices reflect the increasing cost of inputs along the entire food chain, MacLachlan noted.
Along with higher costs for everything from transportation to packaging, the food sector continues to struggle with labor issues, according to Andrew Harig, vice president of tax, trade, sustainability and policy development for FMI – the Food Industry Association.
Annual employee turnover at grocery stores averaged about 50% pre-COVID but currently remains above 60%.
“It looks like a year in flux. Challenges will persist,” Harig said. “These (food) prices don’t look like they’ll come down any time soon.”
The average weekly grocery scan of food purchases increased from an average of $121 in February 2020 to $151 last month. The average grocery purchase peaked at $161 per week at the beginning of the pandemic as many consumers went through a “stockpile” phase, Harig noted.
But the higher cost of the average grocery purchases doesn’t reflect the whole story. Consumers are also cutting back on total purchases to deal with inflation.
“Consumer worries continue to rise,” Harig said. “What we’ve seen in the past year is volumes are down.”
A recent survey found 59% of consumers are currently shopping for more deals, 45% are buying more store brands and 41% are buying fewer items overall, according to FMI.
“Consumers are feeling this more than estimates show,” said Harig, who noted grocers and retailers have been caught in the crosshairs. “Your last trip to the store often shapes how you feel about the food industry.”
While some consumers often blame the point of purchase for high costs, Harig noted high food prices are the result of inflation across all sectors. Higher prices actually erode margins for food retailers, whose profit margins hover around 2-3%.
“People really don’t know where their food comes from or how it’s produced, so when the price changes, it’s a bit of a mystery,” he added. “We’ve seen the supply chain already stretched, and it would normally bounce back. But, it hasn’t and a lot of it still traces back to COVID. We’re still feeling the effects today.”
This story was distributed through a cooperative project between Illinois Farm Bureau and the Illinois Press Association. For more food and farming news, visit FarmWeekNow.com.