Source: USDA ECONOMIC RESEARCH SERVICE, 5/23/14
 
This page provides the following information for April 2014:

Consumer Price Index (CPI) for Food (not seasonally adjusted)

The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, rose 0.3 percent from March to April and is 2 percent above the April 2013 level. The CPI for all food increased 0.4 percent from March to April, increased 0.3 percent from February to March, and is now 1.9 percent above the April 2013 level.
•      The food-at-home (grocery store food items) CPI was up 0.5 percent in April and is up 1.7 percent from last April. The food-at-home CPI increased 0.9 percent 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 percent in April and is up 2.2 percent from last April.

ERS revises its food price forecasts if the conditions (such as the feed grain crop outlook or weather-related crop conditions) on which they are based change significantly. Despite lingering commodity price effects from the severe 2012 drought in the Midwest, retail food prices were flat in 2013. Several agricultural commodity prices, particularly sugar and coffee, decreased in 2013. Fuel prices were moderate, and exports decreased for several major U.S. commodities. Relative to 2012, prices rose considerably for poultry, eggs, fish, and fresh vegetables; however, prices fell for nonalcoholic beverages, sugar and sweets, fats and oils, and other meats. For the remaining food categories, prices were mostly unchanged. From January to December 2013, average supermarket prices fell by 0.2 percent.

Looking ahead to 2014, ERS forecasts that food price inflation will return to a range closer to the historical norm. The food-at-home CPI has already increased more in the first 4 months of 2014 than it did in all of 2013, but given its current trajectory, it is on track for normal annual inflation. Since 1990, grocery store prices have risen by an average of 2.8 percent per year. 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 percent over 2013 levels. This forecast is based on an assumption of normal weather conditions; however, severe weather events could potentially drive up food prices beyond the current forecasts. In particular, the ongoing drought in California could potentially have large and lasting effects on fruit, vegetable, dairy, and egg prices, and drought conditions in Texas and Oklahoma could drive beef prices up even further.

Changes to Food Category CPI Forecasts
Beef and veal prices increased 3 percent from March to April, following a 1.9-percent increase in March and a 4-percent increase in February. The beef and veal CPI is up 11.1 percent since April 2013 and has increased nearly 10 percent thus far in 2014. This is the largest 3-month increase in retail beef prices since the end of 2003. The cattle inventory in the U.S. has continued to decrease in recent months and is currently at its lowest level since 1951. At the same time, beef exports are increasing while imports are flat. The drought in Texas and Oklahoma has worsened somewhat in the last month, providing further complications to the beef production industry. On average, most retail beef prices are at record highs, even after adjusting for inflation. ERS now forecasts beef and veal prices to increase 5.5 to 6.5 percent in 2014.

The CPI for pork increased 3.2 percent in April, the biggest monthly increase since June 1996. Pork prices are up 9.4 percent since 1 year ago. Pork exports have increased, and domestic demand for pork is also up due to record-high beef prices and consumer perceptions of pork as a close substitute for beef. The Porcine Epidemic Diarrhea Virus (PEDV) has destroyed a small percentage of hogs in the U.S. at the time of this update. However, PEDV—a significant  source of risk for hog ranchers—is likely to be driving producers to reduce their herd numbers to reduce costs and minimize losses in the event of widespread PEDV. ERS now forecasts pork prices to increase 3 to 4 percent in 2014.

Due to higher forecasts for both beef and pork, ERS has also revised its forecasts upward for the larger CPI categories that contain these products. The current forecast is for the CPI for meats, poultry, and fish to increase 3 to 4 percent in 2014, and for the CPI for meats to increase 3.5 to 4.5 percent on the year.

Egg prices rose 0.5 percent from March to April and have increased 9.3 percent since this time last year. The recent increases in egg prices, driven in part by a sharp increase in exports, have been larger than what is seasonally expected. Additionally, egg farm prices have continued to increase substantially. ERS has revised its forecast for the egg CPI upward to 5 to 6 percent for 2014.

While increasing, global prices for sugar and coffee remain low. Additionally, it appears as if supermarkets are maintaining minimal price inflation on packaged food products, possibly in an effort to keep prices competitive in light of rising cost pressures for most perishable items. Therefore, ERS has revised the forecast for sugar and sweets downward to 1 to 2 percent and for nonalcoholic beverages downward to 1.5 to 2.5 percent for 2014.

Key Month-Over-Month Changes in the Food CPI
The food-at-home CPI is an average of individual food CPIs, weighted by their relative importance or share of consumer expenditures. In the past month, the food-at-home CPI increased by 0.5 percent; this indicates that prices in many food categories rose. For the first 4 months of 2014, increases in supermarket prices have been driven almost entirely by perishable foods. Prices for other meats (including lunch meats, deli meats, and hot dogs) rose 1.3 percent last month and are up 1.7 percent on the year. This category is typically very stable over time, and increases in demand are likely due to high prices for beef and pork. Similarly, fish and seafood prices rose 1.3 percent from March to April and are up 4.2 percent since last April. Seafood demand is also up due to persistently high meat prices.

The dairy CPI increased 0.5 percent last month and is up 2.8 percent from this time last year. While milk price inflation slowed somewhat in April, milk prices have risen significantly over the past six months, and inflation has now picked up for many prices in the dairy category, particularly cheese.

Fresh fruit prices increased 2.2 percent in April and have risen 7.8 percent since April 2013. For the second consecutive month, this surge has been driven mostly by citrus prices, which remain under pressure from the greening in Florida and the lingering effects of the winter freeze in southern California. Citrus fruit prices increased another 5.7 percent in April and are up 21.3 percent on the year.

Prices fell or were flat in April for most processed or shelf-stable foods. This includes the aforementioned sugar and sweet and nonalcoholic beverage categories, as well as staples such as cereals and bakery products (up 0.1 percent), fats and oils (down 0.9 percent), and other foods (up 0.2 percent).

Due to ongoing drought conditions in California, produce prices have recently come under a great deal of scrutiny. Fresh vegetable prices, however, fell for the third consecutive month, decreasing 0.2 percent from March to April. Vegetable prices are down 2.1 percent from this time last year and are currently lower than forecasted. Overall, the California drought has not yet had a discernible impact on national prices for fruit or vegetables.

Producer Price Index (PPI) for Food (not seasonally adjusted)
The Producer Price Index (PPI) is similar to the CPI in that it measures price changes over time; however, instead of measuring changes in retail prices, the PPI measures the average change in prices paid to domestic producers for their output. The PPI collects data for nearly every industry in the goods-producing sector of the economy. Of particular interest to food markets are three major PPI commodity groups—crude foodstuffs and feedstuffs, intermediate foods and feeds, and finished consumer foods. These groups give a general sense of price movements across the various stages of production in the U.S. food supply chain.

The stage-of-processing PPIs—measures of changes in farm and wholesale prices—are typically far more volatile than their counterparts in the CPI. Price volatility decreases as products move from the farm to the wholesale sector to the retail sector. Due to multiple stages of processing in U.S. food supply systems, the CPI typically lags movements in the PPI. Examining the PPI is thus a useful tool in understanding what may happen to the CPI in the near future.

ERS does not currently forecast industry-level PPIs for crude, intermediate, and finished foods and feeds, but these have historically shown a strong correlation with the all-food and food-at-home CPIs. Crude foods and feeds posted a monthly increase of 3.3 percent from March to April. From February to April, this category experienced the largest monthly increase since 1980, and therefore, prices are currently high.

Intermediate foods and feeds rose 2.7 percent in April, and finished consumer foods were up 2.3 percent. Taken together, these price increases suggest that retail food price inflation will continue and likely accelerate in the coming months.

Farm egg prices increased 14.8 percent in April, after increasing 6 percent in March. Farm eggs prices are up 61 percent from April 2013 and are likely to increase more in 2014 than in 2013. Wholesale pork prices increased 17.9 percent, indicating that ongoing retail pork price inflation can be expected to gain momentum and that the effects of higher demand are outweighing any liquidation that may have occurred in the past month. Farm soybean prices rose 7 percent in April, corroborating the rise in global soybean prices, and indicating that the current deflation in retail fats and oils prices may soon turn around.  

Despite the surge in the fresh fruit CPI and ongoing concerns regarding the effects of the California drought, farm-level fruit prices rose only 4 percent, while farm vegetable prices increased 1.3 percent. These changes do not suggest that above-average inflation for retail produce prices will occur for another month.

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