Grocery inflation has been a significant concern for consumers in recent years, with the pandemic, supply chain disruptions, monetary stimulus, government deficit spending, and other factors contributing to rising food prices.
As we look ahead to the rest of 2024, many people wonder whether this trend will continue or if we can expect some relief at the checkout line. In this article, we’ll explore the latest forecasts from the USDA and other experts to shed light on the future of grocery prices.
A Look Back: Grocery Inflation in Recent Years
We must first look at where we’ve been to understand where we might be headed. Between 2016 and 2019, food-at-home prices remained relatively stable, with even some deflation occurring in 2016 and 2017.
However, the onset of the pandemic in 2020 led to a sharp increase in food prices, particularly for categories like meats and poultry. Food-at-home prices rose by 3.5% in 2020, while food-away-from-home prices increased by 3.4%.
The trend continued in 2021, with all food prices rising by 3.9% and accelerating in the year’s second half. In 2022, food prices soared by a staggering 9.9%, the fastest rate since 1979. Food-at-home prices increased by 11.4%, while food-away-from-home prices rose by 7.7%.
Factors like the pandemic lockdowns, the conflict in Ukraine, and high energy costs all contributed to these record-breaking increases.
The USDA’s Food Price Outlook for 2024
So, what does the USDA expect for grocery prices in 2024? According to their latest Food Price Outlook report, the agency predicts that food price inflation will continue to decelerate compared to the high rates in recent years.
The Consumer Price Index (CPI) for all food is forecast to increase by 2.2%, with a prediction interval of 1.0% to 3.5%. Food-at-home prices are expected to rise by 1.2% (prediction interval: -0.7% to 3.1%), while food-away-from-home prices are projected to increase by 4.2% (3.4% to 4.9%).
Looking at specific food categories, the USDA predicts that prices will increase for most, but at rates below their 20-year historical averages. For example, beef and veal prices are forecast to rise by 4.0%, poultry by 0.9%, and fats and oils by 3.1%.
However, some categories, like eggs and dairy products, expect price declines of 1.8% and 0.7%, respectively.
Consumer Expectations vs. Official Inflation Data
Despite these somewhat encouraging forecasts from the USDA, consumer expectations for food price inflation in 2024 remain high. A survey by Purdue University found that 64% of Americans believe food prices will go up over the next year, with an average expected inflation rate of 3.7%.
This disconnect between consumer sentiment and official CPI data may be influenced by personal experiences with rising prices, media coverage of inflation, and a general sense of economic uncertainty.
It’s worth noting that consumer expectations can sometimes become self-fulfilling prophecies, as businesses may feel more comfortable raising prices if they believe consumers are expecting it.
However, the actual trajectory of food prices will depend on a complex interplay of supply and demand factors and the broader economic environment.
The Impact of the Pandemic and Other Events on Food Prices
The pandemic profoundly impacted the global food system, disrupting supply chains, altering consumer behavior, and increasing producer input costs. The HPAI outbreak, which began in 2022 and has continued to affect poultry and egg production, has also put upward pressure on prices in those categories.
Additionally, the ongoing conflict in Ukraine has compounded inflationary pressures, particularly for grains and vegetable oils. While these events may not directly influence food prices in 2024, their lingering effects could still be felt.
The pandemic has exposed vulnerabilities in our food supply chains and highlighted the need for greater resilience and flexibility. Climate change and geopolitical instability also remain persistent threats to global food security and price stability.
Producer Price Index (PPI) Forecasts and Their Relationship to CPI
In addition to the CPI, which measures retail prices paid by consumers, the Producer Price Index (PPI) tracks prices at the wholesale level. The PPI is often more volatile than the CPI, as it captures price changes earlier in the supply chain. However, movements in the PPI can provide valuable insights into future trends in consumer prices.
For 2024, the USDA does not provide specific PPI forecasts but notes that prices are predicted to increase for seven categories and decrease for six, with most categories having measures of uncertainty that do not rule out either an increase or decrease.
Wholesale pork prices, for example, are forecast to rise by 10.2%, while farm-level fruit prices are expected to decline by 3.3%.
Historical Context: Comparing the Current Inflation Period to the Past
While the recent surge in grocery inflation has been significant, it is essential to place it in a historical context.
The Great Inflation of the 1970s and 1980s saw even higher rates of price increases, driven by factors like oil price shocks, expansionary monetary policy, and rising wages. In comparison, while certainly impactful for consumers, the current inflationary period has been less severe.
Another notable trend in recent decades has been the divergence of food-at-home and food-away-from-home price growth. Between 2009 and 2019, restaurant prices consistently outpaced grocery prices, reflecting differences in the cost structures and demand drivers for these two sectors.
The pandemic briefly disrupted this pattern, but the USDA’s forecasts suggest that food-away-from-home prices will again rise faster than food-at-home prices in 2024.
The Lasting Impact of Shrinkflation on Portion Sizes and Prices
In addition to outright price increases, consumers have also been grappling with “shrinkflation” – reducing product sizes while maintaining the same price.
This sneaky form of inflation has become more prevalent in recent years, with examples like smaller cereal boxes, lighter bags of chips, and fewer sheets on a roll of toilet paper.
The impact of shrinkflation on consumers is twofold: not only are they paying more per unit of product, but they may also find themselves running out of staples more quickly and needing to replenish them more often.
Over time, these changes can add up to a significant erosion of purchasing power, even if the sticker price remains unchanged.
As food manufacturers grapple with rising input costs and competitive pressures, shrinkflation will likely remain a factor in the grocery landscape for the foreseeable future. Consumers must be vigilant in comparing unit prices and seeking out value where they can find it.
Consumer Spending on Groceries and Restaurants in 2024
Despite the challenges posed by inflation, consumer spending on food remains robust. According to the Purdue University survey, Americans reported spending an average of $195 per week on food in February 2024, a 7% increase from the same month in 2023. Of that total, $127 went toward groceries, while $68 was spent at restaurants.
Notably, consumers cited affordability as a critical factor in their food purchasing decisions, with those who expect higher prices in the future emphasizing this attribute. This suggests that as inflation continues to pressure household budgets, shoppers will increasingly seek value and ways to stretch their food dollars further.
Implications for Consumers and the Food Industry
Based on the current forecasts and analysis, it seems likely that grocery inflation will indeed moderate in 2024 compared to the high rates seen in recent years. However, prices are still expected to rise overall, and consumers will continue to feel the pinch of higher food costs.
For shoppers, the key to navigating this environment will be to remain flexible, compare prices across products and retailers, and look for opportunities to save through tactics like buying in bulk, choosing store brands, and reducing food waste. Meal planning and cooking at home more often can also help to stretch food budgets further.
The challenge for the food industry will be to balance the need to maintain profitability with the reality of increasingly price-sensitive consumers. Companies that can find ways to offer value, whether through more affordable products, larger package sizes, or promotional deals, may be better positioned to weather the inflationary environment.
Conclusion
Ultimately, while the road ahead may be bumpy, there is reason for cautious optimism. The USDA’s forecasts suggest that the worst inflation storm may be behind us, even if a return to pre-pandemic price stability is not yet on the horizon. By staying informed, adaptable, and proactive, consumers and the food industry can work together to build a more resilient and affordable food system for the future. [1] [2] [3]
