Despite the severe drought in the Midwest, the Economic Research Service (ERS) reports retail food prices were mostly flat in 2012, with the food-at-home Consumer Price Index (CPI) increasing just 1.1% from January 2012 to January 2013. Price increases for beef and veal, poultry, fruit and other foods were largely offset by price declines for pork, eggs, vegetables and nonalcoholic beverages. Other food categories were largely unchanged for the year.
The CPI for all food rose 0.4% from December to January, after a 0.2% rise from November to December. The CPI is now 1.6% above that of January 2012. The food-at-home CPI rose 0.6% in January ad is up 1.1% from year-ago. The food-away-from home (restaurant) index rose 0.1% in January for a 2.3% increase from the year prior. The all-items CPI rose 0.3% in January to 1.6% above January 2012.
ERS notes that while "seasonality may be a factor, it appears that the effects of the Midwest drought are being reflected in retail food prices." It continues, "Almost all of the major food categories that were expected to show the largest price increases due to the drought—beef, pork, poultry, other meats, eggs, and dairy (especially fluid milk)—have increased more than the food-at-home index in the final quarter of 2012, with the exception of pork."
ERS says that the increase in corn and soybean prices as a result of the drought takes "several months" to transmit into retail prices. Therefore, it expects "most of the impact of the drought will be realized in 2013."
Thus, ERS's inflation forecast if for a 3% to 4% increase for both all food and food-at-home (grocery store) prices in 2013. This annual increase is above the historical average for both indexes.
ERS expects inflation to remain strong, especially in the first half of 2013, for most animal-based food products due to higher feed prices. It also expects inflation should to be above the historical average for food categories such as cereals and bakery products as well as other foods.
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