The Consumer Price Index (CPI) for all food was flat from January to February 2013, keeping the index at 1.6% above February 2012. The food-at-home (grocery store) CPI declined 0.1% in February to stand 1.2% above the year prior. The food-away-from home (restaurant) index rose 0.1% in February to stand 2.3% above year-ago. The all-items CPI rose 1.8% in February, putting it at 2.3% above year-ago levels.
The Economic Research Service (ERS) noted that "while seasonality may be a factor, it appears that the effects of the Midwest drought are being reflected in retail food prices, and consumers are feeling the effects (despite mixed food price directions between January and February)." ERS continues, "prices for all meats and animal-based products have increased more than overall food prices since October 2012, with the exception of pork."
Retail food prices were mostly flat in 2012, despite the severe Midwest drought. The food-at-home CPI rose a total of 0.5% for the year. It explains, "Prices rose for beef and veal, poultry, fruit, and other foods in 2012; however, prices fell for pork, eggs, vegetables, and nonalcoholic beverages. For the remaining food categories, prices were unchanged for the most part."
ERS again noted that while the drought drove up the price of corn, soybeans and other crops, the transmission of commodity price changes into retail prices typically takes several months to occur, and most of the impact of the drought will be realized in 2013.
Therefore, ERS's inflation forecast for both all food and food-at-home prices in 2013 is for increases of 3% to 4%. ERS's forecast represents an annual increase that tops the historical average for both indexes. "Inflation is expected to remain strong, especially in the first half of 2013, for most animal-based food products due to higher feed prices. Furthermore, inflation should be above the historical average for food categories such as cereals and bakery products as well as other foods," ERS elaborates.
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