ERS Expects Food Price Inflation to Rise in 2013

January 25, 2013 02:32 AM

Despite the severe Midwest drought, USDA's Economic Research Service reports retail food prices were mostly flat for 2012. The food-at-home Consumer Price Index (CPI) rose a total of just 0.5% from January to December of 2012. Increases in price for beef and veal, poultry, fruit and other foods were largely offset by price declines for pork, eggs, vegetables and nonalcoholic beverages. For other categories, prices remained largely unchanged.

But ERS reports that because drought increased the prices of corn, soybeans and other field crops, retail food prices will eventually rise, but this transmission of commodity price changes usually takes several months to occur. Thus, the drought's impact is expected to be seen in food prices in 2013.

Considering this, ERS forecasts that both all food and foot-at-home (grocery store) prices in 2013 will rise 3% to 4%. This increase would be above the historical average for both indexes. ERS elaborates, "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 has kept its inflation outlook at 3% to 4% since it first projected the the 2013 food price situation.

From November to December, the CPI for all food rose 0.2%, which is 1.8% above year-ago for December. The food-away from home (restaurant) index rose 0.1% from November, putting it at 2.5% year-ago levels in December. The all-items CPI, on the other hand, declined 0.3% for the month of December, but it is up 1.7% from December 2011. Expanding upon these figures, ERS says, "While seasonality may be a factor, it appears that the effects of the Midwest drought are being reflected in retail food prices. 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—have increased steadily since September 2012, with the exception of pork."

Click here for a category-by-category breakdown of December 2012 food prices.

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