Grocery prices rising at highest rate since 2012

Prices at supermarkets are rising at the highest rate in eight years, as the coronavirus constricts meat production and grocery chains limit sales, said the USDA in a monthly forecast. Grocery prices will rise by a higher-than-average 2.5% this year, double the previous estimate.

"The closure of many meat-processing facilities has put upward pressure on retail meat prices despite abundant farm-level meat supplies," said the USDA's Food Price Outlook, released on Friday. Beef prices surged by 4.2% and poultry by 4.7% in April.

Grocery prices rose at the same time that stay-at-home orders shut down restaurants and sent Americans flooding into food stores or to digital food retailers. The crush of business created short-term shortages of dairy, pasta, soups, and canned vegetables as foodmakers and distributors redirected production lines and changed shipping routes. An estimated 55.2¢ of the food dollar will be spent on food at home, meaning groceries, this year, compared to 54.8¢ before the coronavirus, say USDA economists.

Besides red meat, poultry, and fish, the USDA said prices of most other categories of food – eggs, dairy products, cereals and bakery products, sugar and sweets, fresh vegetables, fats and oils, and processed fruits and vegetables – also would be higher than previously thought, based on increases last month.

Eggs, a volatile commodity, spiked by 15%. "Despite high wholesale egg prices and strong demand in recent weeks, the table-egg layer flock is not expected to expand, which will keep upward pressure on prices," said the Food Outlook. Bakery products including "white bread, cookies, and crackers all increased by over 6% in the month."

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If the inflation estimate proves true, grocery prices would rise by the greatest amount since 2.5% in 2012. Grocery prices rose by 0.9% in 2019 and the 20-year average is 2% a year.

The coronavirus ended the trend of recent years of smaller increases in food at home than for food away from home, meaning restaurants meals, carryout food, and institutional dining. Food-at-home prices rose by 2.7%, and food-away-from-home prices rose by 0.1% in April.

The USDA raised its forecast of annual food inflation a couple of weeks after the Bureau of Labor Statistics said food-at-home prices were 2.6% higher in April – the largest monthly increase since February 1974. "The increase was broad-based, with all six major grocery store food groups increasing at least 1.5% over the month," said the BLS. Food prices were up but the U.S. inflation rate fell due to a plunge in gasoline prices.

Financial advice publisher Kiplinger listed food and housing prices as likely exceptions to an overall decline in inflation this year. "Food prices will rise 5%, a bit more than usual," said Kiplinger shortly after the BLS inflation report on May 12.

There are a variety of ways to measure food inflation, among them month-to-month changes or comparisons of current prices with one year earlier, besides the year-on-year approach used by USDA.