USDA's Economic Research Service (ERS) has lowered its all food and food-at-home (grocery store) price forecast for 2013 to increases of 1.5% to 2.5%. This is down 1 point from both sides of its range from month-ago. This forecast signals prices will increase less than they did 2012, and that inflation as a whole is expected to be lower than the historical average for both indexes.
"The drought has had less of an impact on retail food prices than initially forecast. The inflationary pressure due to the drought has been offset by several factors—decreased exports of many U.S. agricultural products, a stronger U.S. dollar, low energy price inflation, and decreased prices for many commodities not affected by the drought," ERS details.
Looking ahead to 2014, ERS expects normal food price inflation for 2014. It anticipates the Consumer Price Index (CPI) for food, foot-at-home and food-away-from-home will increase 2.5% to 3.5% from 2013 levels. "Inflationary pressures are expected to be moderate, based on the outlook for commodity prices and animal inventories, as well as a continuation of export trends," ERS explains. But it cautions the forecast is based on normal weather conditions; a resurgence of the drought in key ag areas or severe weather could drive food prices significantly higher, according to ERS.
The CPI for all food increased 0.1% from May to June, decreased 0.1% from April to May, and is now 1.4% above the June 2012 level. The food-at-home CPI increased 0.1% in June and is up 0.9% from last June, while the food-away-from-home (restaurant) index increased 0.2% in June and is up 2.2% from last June. The all-items CPI rose 0.2% in June and is 1.8% above the June 2012 level. "The overall direction of prices in 2013 continues to be mixed, and the food-at-home CPI is flat thus far in 2013," ERS details.
Taking an even closer look at the data, ERS breaks out the following highlights:
- Beef prices were up 0.4% in June and are 1.4% above last June, with steak prices up 1.9% and ground beef prices down 0.5%. The impact of high feed prices on retail beef prices was small (in percentage terms), because prices for many beef products had already attained record highs before the effects of the drought were realized. ERS has revised its beef forecast for 2013 downward to 2% to 3%.
- Pork prices increased 0.7% in June and are 0.6% above last June's level. A decline in exports and increased hog production have resulted in pork prices thus far in 2013 that are well below 2012 prices. While pork prices are expected to rise for the remainder of the year, ERS expects inflation for the CPI for pork to range from 0% to 1%.
- Poultry prices rose 1.4% in June; poultry prices are 5.5% above prices last year at this time, with chicken prices up 6.7% and other poultry prices (including turkey) up 1.3%. The poultry category has seen one of the largest estimated effects of the drought.
- Fish and seafood prices increased 0.3% from May to June and are 1.6% above the June 2012 level.
- Egg prices increased 1.1% in June and are now 6.9% above the June 2012 level. Egg prices are subject to strong seasonal swings in pricing but have clearly increased significantly due to the 2012 drought. Much of the surge in egg prices occurred in the fourth quarter of 2012, and ERS now forecasts egg prices to increase 2% to 3% for 2013.
- Dairy prices decreased 0.1% from May to June and decreased 0.8% from April to May. Dairy prices are now 0.3% above the June 2012 level. It is increasingly apparent that the drought and higher feed prices accounted for much of the surge in fluid milk prices in the final quarter of 2012. Increased milk production has offset much of this effect in 2013, and ERS now expects dairy inflation to be 1% to 2% in 2013.
- Fresh fruit prices decreased 2.6% in June, and the fresh fruit index is up 0.8% from last year at this time. Fruit prices surged early in 2013, but ERS has revised its 2013 forecast downward to 2% to 3%.
- The fresh vegetable index increased 0.3% in June. Since last year at this time, fresh vegetable prices are up 1.8%. ERS expects vegetable price inflation to be 2.5% to 3.5% for 2013, revising its forecast downward due to flat or decreasing prices for most crops in recent months.
- Processed fruit and vegetable prices rose 0.3% in June and are up 0.4% from the June 2012 level.
- Cereal and bakery product prices increased 0.2% from May to June and are up 1.6% from last year at this time, with bread prices up 3.2% and breakfast cereal prices up 0.3% over the past year. An improved outlook for the hard red winter wheat crop has led ERS to revise its 2013 forecast for this category downward to 1.5 to 2.5%.
- Sugar and sweets prices increased 0.5% in June and are 1.6% below the June 2012 level. Based on an ongoing trend of strong global production for sugarcane and sugar beets, ERS now expects sugar and sweets prices to increase 0% to 1% for 2013.
- Prices for nonalcoholic beverages, including coffee and carbonated beverages, are up 0.1% in June and are down 0.9% from last year. Low sugar and fuel prices have resulted in a downward revision to the forecast for this category to 0% to 1% in 2013.
- The index for fats and oils was down 0.6% from May to June and is 1.5% below the June 2012 level. Soybean prices faced pressure in 2012 from both decreased production in South America as well as the drought in the U.S. Inflation for this category is expected to moderate in 2013, following two consecutive years of significant price increases.
Get more details and analysis.