Food Price Outlook
The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, rose by 0.8 percent from December 2022 to January 2023 and was up 6.4 percent from January 2022.
Food Price Outlook
The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, rose by 0.8 percent from December 2022 to January 2023 and was up 6.4 percent from January 2022. The CPI for all food increased 0.7 percent from December 2022 to January 2023, and food prices were 10.1 percent higher than in January 2022.
The level of food price inflation varies depending on whether the food was purchased for consumption at home or away from home:
--The food-at-home (grocery store or supermarket food purchases) CPI increased 0.8 percent from December 2022 to January 2023 and was 11.3 percent higher than January 2022; and
--The food-away-from-home (restaurant purchases) CPI increased 0.6 percent in January 2023 and was 8.2 percent higher than January 2022.
Food prices are expected to grow more slowly in 2023 than in 2022 but still at above historical average rates. In 2023, all food prices are predicted to increase 7.9 percent, with a prediction interval of 5.5 to 10.3 percent. Food-at-home prices are predicted to increase 8.6 percent, with a prediction interval of 5.6 to 11.8 percent. Food-away-from-home prices are predicted to increase 8.3 percent, with a prediction interval of 7.1 to 9.6 percent.
Recent Historical Overview
Between the 1970s and early 2000s, food-at-home prices and food-away-from-home prices increased at similar rates. However, between 2009–2019, their growth rates diverged; while food-at-home prices deflated in 2016 and 2017, monthly food-away-from-home prices rose consistently. Differences between the costs of serving prepared food at restaurants and retailing food in supermarkets and grocery stores partly explains this difference.
In 2020, food-at-home prices increased 3.5 percent and food-away-from-home prices 3.4 percent. This convergence was largely driven by a rapid increase in food-at-home prices, while food-away-from-home price inflation remained within 0.3 percentage points of the 2019 inflation rate. The largest price increases were for meat categories: beef and veal prices increased by 9.6 percent, pork prices by 6.3 percent, and poultry prices by 5.6 percent. The only category to decrease in price in 2020 was fresh fruits, by 0.8 percent.
In 2021, food-at-home prices increased 3.5 percent and food-away-from-home prices increased 4.5 percent. The CPI for all food increased an average of 3.9 percent in 2021. Of all the CPI food-at-home categories tracked by the U.S. Department of Agriculture (USDA), Economic Research Service (ERS), the beef and veal category had the largest relative price increase (9.3 percent) and the fresh vegetables category the smallest (1.1 percent). No food categories decreased in price in 2021 compared with prices in 2020.
In 2022, food prices increased by 9.9 percent. Food-at-home prices increased by 11.4 percent, while food-away-from-home prices increased by 7.7 percent. All food price categories tracked by ERS increased by more than 5 percent, and all food categories grew faster than their historical average rate. Following an outbreak of Highly Pathogenic Avian Influenza (HPAI), egg prices had the largest price increase (32.2 percent) between 2021 and 2022 of any category tracked by ERS. Beef and veal prices increased the least (5.3 percent) between 2021 and 2022 and generally declined from peak prices in November 2021.
CPI Forecast Changes This Month
The primary forecasting methodology used in the USDA Food Price Outlook changed between December 2022 and January 2023. Data using legacy methods will continue to be published alongside the primary methods but will not be reported in the Summary Findings. The updated primary methods are based entirely on statistical models that are fitted to recent trends in the data. These methods provide wider initial prediction intervals that narrow over the forecast period as more data become available and the degree of uncertainty declines. Discussions of price changes will focus on the midpoint of these forecast intervals (titled “Mid” in the workbooks) and use the lower and upper bounds of a 95-percent prediction interval (based on past data, the 2023 level of inflation is expected to fall in this interval 19 out of 20 times) to reflect the level of uncertainty (titled “Lower” and “Upper” in the workbooks, respectively).
Price increases for all-food, food at home, and food away from home were higher in January 2023 than December 2022, but their year-over-year price increases continued to decline. Prices increased for 12 food-at-home categories between December 2022 and January 2023. Prices declined for three food categories within meats, poultry, and fish or fruits and vegetables. The continuing increases in the Federal funds (interest) rate by the Federal Reserve placed downward pressure on prices, and prices for unprocessed agricultural commodities have decreased since peaking in May 2022. The effects of these conditions will be closely monitored as they unfold to assess their impacts on food prices.
Retail egg prices increased 8.5 percent in January 2023 and reached 70.1 percent above January 2022 prices. The ongoing outbreak of HPAI continues to reduce the U.S. egg-layer flock, as well as the poultry flock to a lesser extent. This decrease is expected to increase wholesale and retail egg prices for the coming months. The HPAI outbreak has contributed to elevated egg and poultry prices as over 58 million birds, 316 commercial flocks, and 47 States have been affected. Price impacts of the outbreak will be monitored closely. Egg prices are predicted to increase 37.8 percent in 2023, with a prediction interval of 18.3 to 62.3 percent. This wide prediction interval reflects the volatility in retail egg prices.
Prices are expected to continue increasing for eight additional food categories that experienced consistent growth throughout 2022. In 2023, prices are predicted to increase for other meats (4.7 percent), dairy products (7.2 percent), fats and oils (16.7 percent), processed fruits and vegetables (9.9 percent), sugar and sweets (11.5 percent), cereals and bakery products (12.8 percent), nonalcoholic beverages (9.9 percent), and other foods (8.1 percent). The prediction intervals of each of these categories are strictly above zero.
Price decreases are expected for two price categories. Beef and veal prices are predicted to decrease 1.2 percent in 2023, with a prediction interval of -8.8 to 7.3 percent, and pork prices are predicted to decrease 1.6 percent, with a prediction interval of -8.2 to 5.5 percent.
Prices for fresh fruits and vegetables are predicted to continue their relatively slow growth from 2022. Prices for fresh fruits increased 1.9 percent in January 2023, reversing the 2.0 percent decline in December 2022. Fresh fruits prices are predicted to increase 0.1 percent in 2023, with a prediction interval of -5.6 to 6.4 percent. Fresh vegetables prices decreased 1.1 percent in January, and the decline was not attributable to seasonal factors. Fresh vegetables prices are predicted to increase 3.0 percent, with a prediction interval of -4.2 to 11.2 percent.
Producer Price Index for Food (not seasonally adjusted)
A Producer Price Index (PPI) resembles a CPI in that it reflects price changes over time. However, instead of retail prices, a PPI provides a measure of the average prices paid to domestic producers for their output. PPIs are reported for nearly every industry in the goods-producing sector of the economy. Three major PPI commodity groups are of interest to food markets: unprocessed foodstuffs and feedstuffs (formerly called crude foodstuffs and feedstuffs): processed foods and feeds (formerly called intermediate foods and feeds); and finished consumer foods. These groups give a general sense of price movements across various stages of production in the U.S. food supply chain.
The PPIs—measures of changes in farm and wholesale prices—are typically far more volatile than the downstream CPIs. Price volatility decreases as products move from the farm to the wholesale sector to the retail sector. Because of multiple processing stages in the U.S. food system, the CPI typically lags movements in the PPI. The PPI is thus a useful tool for understanding what may soon happen to the CPI.
The USDA, Economic Research Service does not forecast industry-level PPIs for unprocessed, processed, and finished foods and feeds. However, these prices have historically shown a strong correlation with the all-food and food-at-home CPIs.
PPI Forecast Changes This Month
Greater volatility in farm- and wholesale-level prices lead to much wider initial prediction intervals for each of these products. All prediction intervals include zero, indicating significant uncertainty about price increases or decreases in 2023. The midpoint (representing the expected price change in 2023) of nine PPI categories’ prediction intervals are negative and four are positive.
Wholesale poultry prices rebounded by 3.0 percent in January 2023 following a 9.6-percent decrease in December 2022 and a 7.8-percent decrease in October 2022. Strong production, increasing supplies, and changing trade patterns generally drove poultry prices down in the final quarter of 2022, despite the ongoing outbreak of HPAI. Farm-level egg prices fell 20.1 percent in January 2023 after jumping 30.2 percent in December 2022 and 19.6 percent in November 2022. Egg prices remain high and were 222.8 percent higher than January 2022. HPAI continues to affect the egg-layer flock. Wholesale poultry prices are predicted to decrease 7.5 percent in 2023, with a prediction interval of -16.6 to 2.6 percent. Farm-level egg prices are predicted to increase 7.4 percent in 2023, with a prediction interval of -32.6 to 76.1 percent. Egg prices are the most volatile category tracked by ERS, leading to a wide prediction interval.
Farm-level vegetable prices fell by 33.5 percent in January 2023 as supplies recovered from inclement weather impacts in 2022. Farm-level vegetable prices were 32.6 percent above January 2022. Farm-level vegetable prices are predicted to decrease 3.1 percent in 2023, with a prediction interval of -22.8 to 21.9 percent.