Food CPI, Prices, and Expenditures: Analysis and Forecasts of the CPI for Food

Food CPI, Prices, and Expenditures Briefing Room Analysis and Forecasts of the CPI for Food What's Behind the Forecasts? How Changes in Input Costs Affect Food Prices CPI Bias Three Types of Food Expenditures Series Measuring the ERS Food Expenditure Series

Food Price Outlook, 2008

In 2008, the Consumer Price Index (CPI) for all food is projected to increase 5.0 to 6.0 percent, as retailers pass on higher commodity and energy costs to consumers in the form of higher retail prices for most of the year. The main factors behind higher food commodity costs include:

• Stronger global demand for food
• Increased U.S. agricultural exports resulting from stronger demand and a weaker dollar
• Weather-related production problems in some areas of the world
• Increased use of some food commodities, such as corn, for bioenergy uses

As commodity food and energy costs have declined over the past few weeks, pressure on retail food prices has started to subside. Assuming that the recent drop in commodity prices is not short term, the main effects of this drop could result in lower expected retail food price inflation in 2009.

Food-at-home prices are forecast to increase 5.5 to 6.5 percent, while food-away-from-home prices are forecast to increase 3.5 to 4.5 percent in 2008. The all-food CPI increased 4.0 percent between 2006 and 2007, the highest annual increase since 1990. Food-at-home prices, led by egg, dairy, and poultry prices, increased 4.2 percent, while food-away-from-home prices rose 3.6 percent in 2007.

See ERS data on CPI for food and CPI forecasts

November 2008 Prices

The CPI for all food was unchanged from October to November 2008, increased 0.5 percent from September to October 2008, and is now 6.0 percent higher than the November 2007 level. The food-at-home index decreased 0.3 percent in November 2008 and is now 7.0 percent above last November, while the food-away-from-home index increased 0.3 percent and is now 4.9 percent above last November. The all-items CPI decreased 1.9 percent in November but is still 1.1 percent above the November 2007 level.

Beef prices decreased 1.2 percent in November due to the effect of weaker consumer demand on retail beef prices. Beef prices are still 6.0 percent above last November, as higher feed and operating costs for beef production for most of 2007 and 2008 have caused an increase in retail beef prices. Pork prices decreased a completely seasonal 1.0 percent in November but are still 5.2 percent above last November’s level. Poultry prices increased 0.6 percent in November and are up 5.6 percent from last year at this time. As substantially lower feed and energy costs are incorporated into meat production costs, retail meat price inflation should begin to moderate over the next few months.

Egg prices increased a completely seasonal 0.3 percent in November but are still 0.3 percent below the November 2007 level.

Dairy prices were up 0.2 percent in November and are up 3.5 percent from the November 2007 level. Within the dairy category, prices changed as follows in November: milk prices increased 1.0 percent (following a 2-month price decline in September and October) and are 2.1 percent below last November’s prices; cheese prices were down 0.2 percent but are still 8.8 percent above last November’s level; ice cream and related product prices increased 0.4 percent and are 6.7 percent above last November; and butter prices decreased 4.3 percent but are still 6.8 percent above last November.

Fresh fruit prices decreased 2.6 percent in November, largely due to a seasonal 14.2-percent decrease in citrus prices and a 5.7-percent decrease in apple prices. The fresh fruit index is now up only 0.1 percent overall from last year at this time, with apple prices up 9.9 percent, banana prices up 19.3 percent, citrus fruit prices down 1.7 percent, and other fresh fruit prices down 7.2 percent. The fresh vegetable index increased 1.5 percent in November, mostly due to a 10-percent increase in tomato prices. Since last year at this time, fresh vegetable prices are up 6.3 percent, with lettuce prices up 2.5 percent, potato prices up 26 percent, tomato prices down 2.0 percent, and other fresh vegetable prices up 4.1 percent.

Cereals and bakery product prices were unchanged from October to November 2008. Surging wheat prices had caused cereal and bakery product prices to increase sharply for most of 2008, but with current wheat commodity prices down over 40 percent from a March 2008 high, retail cereal and bakery product price inflation should begin to moderate over the next few months. Nonetheless, cereals and bakery product prices are still up 12 percent from last year at this time as higher wheat, corn, and energy prices have pushed production costs for these products up sharply over the past year. Sugar and sweets prices were up 0.7 percent in November and are 7.4 percent above last November. Within the nonalcoholic beverages category, prices changed as follows in November: carbonated drink prices were down 0.3 percent but are still up 7.8 percent from November 2007; coffee prices decreased 2.5 percent but are still 6.9 percent higher than last November; and nonfrozen noncarbonated juices and drinks prices were up 0.2 percent in November and are 4.9 percent above the November 2007 level.