Retail Food Prices on the Rise: CPI, First such increase in 19 months

August 11, 2017

By Bridget Goldschmidt, EnsembleIQ | Progressive Grocer

Retail food-at-home prices rose 0.3 percent in July, according to the Consumer Price Index (CPI), the first 12-month increase since November 2015 and a signal of easing deflation. For the month, the food-at-home index edged up 0.2 percent, after declining in June.

The CPI noted: “Major grocery store food group index movements were mixed in July. The index for meats, poultry, fish, and eggs rose 0.7 percent following a 0.6 percent rise the prior month, as the beef index continued to increase. The index for fruits and vegetables rose 0.5 percent after declining in June. The index for dairy and related products also turned up in July, rising 0.3 percent after a 0.5-percent decrease in June.

“In contrast,” the CPI continued, “the index for cereals and bakery products declined 0.4 percent in July, and the index for nonalcoholic beverages fell 0.3 percent. The index for other food at home was unchanged in July after falling in May and June.”

Further, the CPI reported that five of the six major grocery store food group indexes rose over the past 12 months, although none more than 1 percent. The only index to decline over the past year was that for cereals and bakery products, which dropped 0.5 percent.

Wholesale food prices began inching up in March, following a 22-month period of price deflation.

Issued monthly by the U.S. Bureau of Labor Statistics, the CPI measures the change in prices paid by consumers for goods and services. The index reflects the spending patterns of two population groups: all urban consumers and urban wage earners and clerical workers.

In an interview with Progressive Grocer, industry observer Burt Flickinger III, managing director of New York-based Strategic Resource Group, described the “long overdue” upturn in retail food prices as “good news for retailers.” Flickinger noted that the trend was likely to continue, attributing the price inflation to such ongoing factors as inconsistent weather in the United States and Canada, notably torrential rains and flooding, and production problems in other parts of the world, including China and South America, which would place crop yields under pressure and begin a drain on the excess agricultural inventory stored in silos. In the meat sector, meanwhile, he said that herds and flocks are being culled because of porcine virus and avian flu, resulting in less livestock.

Flickinger added that the situation was changing from “nightmarish food deflation to very steady food inflation” of 1.5 percent to 2 percent. He deemed this “just the right amount” for food retailers, with the exception of those expected to be caught up in a coming “price war of unprecedented proportions” among Lidl, Aldi and Walmart, set off by Lidl’s entry into the Southeast and likely to spread as the German deep-discount retailer opens stores in additional U.S. markets.