ERS Still Expects Food Prices to Rise 2.5% to 3.5% from Year-ago

March 25, 2014 04:00 AM

The all-items Consumer Price Index (CPI), which is a measure of inflation across the economy, rose 0.4% in February to stand 1.1% above year-ago, according to USDA's Economic Research Service (ERS). The CPI for all food rose 0.3% from month-ago in February and now stands 1.4% above year-ago levels. ERS details:

  • The food-at-home (grocery store food items) CPI was up 0.3% in February and is up 0.9% from last February. The food-at-home CPI increased 0.9% from 2012 to 2013—one of the smallest year-over-year increases in decades; and
  • The food-away-from-home (restaurant purchases) CPI increased 0.3% in February and is up 2.2% from last February.


ERS says that despite lingering effects on commodity prices from the severe drought of 2012 in the Midwest, retail food prices were flat in 2013. From February to December 2013, average supermarket prices fell by 0.2%, according to ERS.

Looking ahead to 2014, ERS anticipates food price inflation will return to a range closer to the historical norm. In fact, the food-at-home CPI has already increased more in the first two months of 2014 than it did for all of 2013. Given its current trajectory, ERS says it is on track for normal annual inflation. ERS explains that since 1990, grocery store prices have risen by an average of 2.8% per year.

ERS details that in 2014, "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. The food, food-at-home, and food-away-from-home CPIs are expected to increase 2.5% to 3.5% over 2013 levels."

This forecast assumes normal weather conditions, and therefore is subject to change as severe weather could drive food prices above current forecasts. "In particular, the ongoing drought in California could potentially have large and lasting effects on fruit, vegetable, dairy and egg prices," ERS elaborates.

Get more details on ERS's outlook for specific commodities.

The Producer Price Index measures price changes over time (like the CPI), but it measures the average change in prices paid to domestic producers for their output, rather than changes in retail prices. ERS notes there are three major PPI commodity groups: crude foodstuffs and feedstuffs, intermediate foods and feeds, and finished consumer foods. These categories provide a general sense of price movement across the production stages of the U.S. food supply chain.

"Crude foods and feeds posted a monthly increase of 1.1% from January to February, and intermediate foods and feeds posted a monthly increase of 0.9%. Finished consumer foods were up 0.4% from January to February. This is the second consecutive month that all three indices trended upward, suggesting that retail food price inflation will continue in the coming months and be stronger than it was in the last quarter of 2013," ERS explains.

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