ERS Expects Food Prices to Rise 2.5% to 3.5% in 2014

January 27, 2014 08:43 AM

USDA's Economic Research Service (ERS) recently reported that a key measure of economy-wide inflation, the all-items Consumer Price Index, held steady in December at 1.5% above the year prior. The CPI for all food rose 0.1% from November to stand 1.1% above year-ago levels.

More specifically, the food-at-home (grocery store) CPI rose 0.1% in December to stand 0.4% above year-ago. This index rose 0.9% between 2012 and 2013, but it declined 0.2% during 2013.

The food-away-from-home (restaurant buys) CPI also increased 0.1% in December to stand 2.1% above December 2012.

Looking ahead to 2014, ERS expects the food, food-at-home and food-away-from-home CPIs to rise 2.5% to 3.5%. This is unchanged from its November projection.

ERS expects food price inflation will return to a level more aligned with the historical norm. It explains, "inflationary pressures are expected to be moderate, given the outlook for commodity prices, animal inventories, and ongoing export trends. Retailer margins, having contracted since the drought, may expand in 2014 if input prices rise, which should contribute to inflation."

Of note in terms of changes to food category CPI forecasts, ERS now expects beef and veal prices to rise 3% to 4% from 2013 levels. Beef and veal prices rose just 2.0% annually in 2013.

"Recent periods of unusually cold weather across the country have disrupted cattle flows throughout the supply chain and increased production costs. Additionally, cattle inventories, which have been very low since the 2012 drought, are expected to decrease slightly in early 2014, further restricting supply. Many retail beef prices are at or near record highs across the country, even after adjusting for inflation," ERS explains.

Also of note in terms of food category changes, ERS lowered its inflation forecast for cereals and bakery products to a 1.5% to 2.5% rise in 2014, which compares to a 1% annual increase in 2013. Previously ERS expected a 2% to 3% rise for the category. 

"This adjustment is based on current projections for wheat production in the U.S., as well as recent decreases in fuel prices. Energy is a large cost component for prices in this category, due to the processing required for many of the products," according to ERS.

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