I was on NBC Nightly News last night talking about rising retail food prices (the whole episode is here, my very short clip starts around the 17:50 mark). I’d previously talked to the Today Show on the same subject and fielded several other media questions in recent days about whether we have a chicken shortage.
All the recent attention on food price inflation is a bit perplexing. The rate of food price increases over the past year is definitely above what we have come to expect in recent years, but we aren’t seeing spikes right now like we witnessed during the initial COVID shutdowns in March 2020 or the beef and pork packing plant shutdowns later in April and May of last year. By “spike” I mean the month-to-month increase. But, we have seen continually increasing prices over the past year for many foods. Perhaps it is the cumulative effect of higher than average monthly increases that is starting to get people noticing. Moreover, there are some wholesale meat prices, like those for chicken breast, chicken wings, pork belly, pork ribs, and beef loins that are running far above average, which is attracting attention as we head into grilling season.
Before showing some data on retail food prices, a few comments about some factors pushing prices higher:
Overall inflation (including food and non-food items) is on the rise over the past several months. The year-over-year change in the overall price level in March (i.e., March 2021 relative March 2020) was 2.6%. That’s not abnormally high. From 2000 to 2007, the average year-over-year change was 2.8%. However, 2.6% is much higher than we’ve experienced in recent years. During 2019 and 2020, the year-over-year increase in overall inflation was only 1.5%. There is much debate among economists on the issue, but given the high levels of stimulus pumped into the economy and the corresponding high personal savings rates among consumers), all that extra cash floating around seems to be putting upward pressure on prices.
Turning to food, there appear to be extra costs in the system that are pushing up prices, much of it resulting from COVID. Bureau of Labor Statistics data indicate wages (or, more precisely, average weekly earnings) in food manufacturing are running about 4-5% higher than the same time last year and are about 7-8% higher in food retail.
Prices of farm commodities like corn, soybeans, wheat, and hogs, have been running significantly higher since this fall. Why? Transportation has picked back up, increasing demand for ethanol, and thus corn (roughly 40% of corn goes to ethanol). China has increased purchases of many U.S. farm commodities, pulling up prices. Adverse weather in parts of the Midwest U.S. and in South America during the most recent growing seasons has affected supply. On the topic of weather, winter storms in the Southern U.S. adversely affected chicken processing a couple months ago. Higher corn and soybean prices are pushing up livestock, poultry, and egg prices.
So, what is happening to retail food prices? Here are some figures I created using data from the Bureau of Labor Statistics (as of March 2021, the last date they’re currently reporting) Below are year-over-year changes in prices of food at home (i.e., though supermarkets and grocery) and away from home (i.e., through restaurants) through March 2021 .
The figure above looks as if prices of food at home have been falling since March of 2020; however, note that the figure reports the implied annual rate of increase. Thus, the figure is showing that the rate of increase has fallen a bit, NOT that food prices are falling. If, instead, we look at the change in prices from a fixed point in the past (say, January 2011), a different picture emerges.
As the figure shows, food prices through grocery are today about 15-16% higher than they were in January 2011. Moreover, there was a big spike in March 2020, and while there was a temporary reprieve, prices in recent months have trended back upward.
If you’re curious about the individual food products driving the increase in food prices, below are the year-over-year changes for four broad categories. As the figure shows, meat, poultry, fish, and eggs are a big driver of the overall increase in price of food at home.
Honing in a little further, below are the year-over-year changes in beef, pork, and chicken prices bought through grocery.
Again, it might be useful to look not at year over year changes (i.e., the rate of inflation), but instead look at the change in prices from a fixed point in the past (January 2011). As of March 2021, retail beef, pork, and chicken prices are about 45% , 17%, and 20% higher than in January 2011, respectively.
