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Food price inflation slows a bit

Food price inflation slows a bit

Food price inflation slows a bit
FOOD prices in the U.S., in the long view, don't change much relative to commodity prices.

According to data from the U.S. Department of Agriculture, however, food price changes have become less volatile, while agricultural commodity prices have become more volatile than ever.

USDA's Economic Research Service (ERS) compared the relative volatility of field crop prices — namely corn, soybeans and wheat — to the Consumer Price Index (CPI) for all foods. ERS that large changes in major commodity prices yield minor impacts on food prices.

In 2007-08, for example, the average production-weighted price of the three crops rose 50%, but food prices increased only 5.5%. In 2010-11, crop prices rose 31%, while food prices climbed just 3.7% (Figure).

ERS noted that food price inflation averaged 8% per year during the 1970s but has averaged only 2.8% per year since 1990, yet commodity prices have grown somewhat more volatile and regularly rise or fall by more than 10% from year to year.

In a monthly update of USDA's food price outlook, ERS economist Ricky Volpe reported that the all-food CPI did not change from February to March after also remaining unchanged from January to February. Beef, pork and poultry prices, on the other hand, all increased in March.

Beef prices grew 0.1% in March, with steak prices up 1.7% from last year and ground beef prices up 3.1%. Pork prices rose 0.6% in March, and poultry prices increased 0.3%. Conversely, egg prices fell 1.8% for the month, and dairy prices dropped 0.6% following a 0.4% drop in February.

"We are now looking (for) overall food prices to increase by 2.5-3.5% on the year," Volpe explained, noting that ERS had revised the inflation forecast "for the first time in a while."

Trimming USDA's forecast slightly, food prices are now expected to increase more than in 2012, but overall inflation is expected to remain closer to the historical average than previously estimated.

USDA researchers also recently looked into the effects of income and prices on fluid milk consumption.

An April ERS report examined dairy demand and consumption during the 2007-09 recession and found that cash-strapped consumers tended to opt for, not surprisingly, lower-priced options.

"Households typically switch to less-expensive products when their incomes decrease," the report explains. "For instance, households save money by choosing fluid milk products with a lower fat content or by switching from organic to conventional milk."

ERS found that large price shocks tended to have little effect on choice of product size — a gallon of milk was still the preferred option — but did yield a significant drop in growth of organic milk sales and increased purchases of low-fat milk.

"In general, demand for organic milk is more sensitive than demand for conventional milk to swings in income and food prices," the report concludes. "During the recent recession, when incomes declined and prices rose, growth in organic milk sales stalled."

Volume:85 Issue:18

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