August inflation uptick doesn’t trip up decline in grocery pricing

Higher fuel prices pose headwind, but an FMI-The Food Industry Association analysis shows historical consistency in food inflation levels.
Food shopper-checkout-payment_Shutterstock
Food-at-home pricing inched up 0.2% monthly and 3% annually in August, down from upticks of 0.3% and 3.6% in July. / Photo: Shutterstock

Grocery price inflation dipped in August despite an overall uptick in the Consumer Price Index (CPI), lifted by a jump in gasoline and oil pricing.

The August CPI for All Urban Consumers edged up 3.7% (unadjusted) year over year, topping a 3.2% increase in July, the U.S. Bureau of Labor Statistics (BLS) reported Wednesday. That marked two months of annual gains in inflation after 12 months of yearly decreases in the CPI, according to BLS data.

Rounding out the 12-month period, the CPI rose 3% year over year for June, 4% for May, 4.9% for April, 5% for March, 6% for February, 6.4% for January and, in 2022, was up 6.5% for December, 7.1% for November, 7.7% for October, 8.2% for September and 8.3% for August.

On a monthly basis, the August CPI climbed 0.6% (seasonally adjusted), compared with 0.2% in both July and June. Sequential growth in the CPI has stayed below 1% since the summer of 2022, this year coming in at 0.1% in May, 0.4% in April, 0.1% in March, 0.4% in February, 0.5% in January and, last year, at 0.1% in December, 0.2% in November, 0.5% in October, 0.4% in September, 0.2% in August and flat in July.

Energy prices drove higher overall inflation for August, with a month-to-month increase of 5.6% after just a 0.1% uptick in July. Gas prices shot up by 10.6% in August following a 0.2% gain in July, while fuel oil pricing saw a 9.1% spurt for August after rising just 3% for July. Still, energy price inflation remains down year over year, falling 3.6% in August and reflecting annual decreases of 3.3% for gas and 14.8% for fuel oil.

August 2023 food inflation-US Bureau of Labor Statistics

Source: U.S Bureau of Labor Statistics

Excluding food and energy, the August CPI was up 4.3% from a year ago and 0.3% from the previous month, about the same as upticks of 4.7% year over year and 0.2% month to month in July, BLS reported.

“The Fed will likely be dissatisfied with these data, but we still expect it to keep interest rates unchanged at the September meeting,” Erik Lundh, principal economist at business think tank The Conference Board, observed Wednesday in a brief on the August CPI numbers. “Thereafter, we expect one final hike in November and no rate cuts until Q2 2024. However, a more prolonged surge in energy prices could introduce additional inflationary pressures and push the Fed to become even more aggressive.

“A spike in energy prices was responsible for the higher top-line CPI reading,” Lundh noted. “Indeed, gasoline prices alone accounted for more than half the increase this month.”

Food-at-home prices remain relaxed

Price inflation for groceries remains at a fraction of its year-ago level. The food-at-home index rose 3% annually in August, down from 3.6% in July and extending notable decreases so far in 2023 from 4.7% in June, 5.8% in May, 7.1% in April, 8.4% in March, 10.2% in February and 11.3% in January. Those declines continued a downward trend from 13.5% in August 2022.

Month to month, food-at-home inflation inched up 0.2% in August after ticking up 0.3% in July, which followed a flat reading for June. An uptick 0.1% came after month-over-month declines of 0.2% in April and 0.3% in March, with the latter marking the first decrease since September 2020, according to BLS.

Monthly gains in the food-at-home CPI have held at less than 1% since a 0.8% increase in August 2022 and remain well below sequential growth of 1.3% in July 2022. The 2023 calendar year started out with increases of 0.4% in January and 0.3% in February.

“The August CPI report illustrates that inflation for food-at-home continues to stabilize and create a more predictable shopping experience for consumers,” Andy Harig, vice president of tax, trade, sustainability and policy development at FMI-The Food Industry Association, said in a statement on Wednesday.

August 2023 food inflation-food groups-US Bureau of Labor Statistics

Source: U.S Bureau of Labor Statistics

“Despite this, Americans still face inflationary headwinds, driven in part by higher fuel prices, which are an important input in food production and need to be watched. Even as food prices—and the broader economy—continues to recalibrate, there is reason for optimism,” Harig explained. “FMI’s U.S. Grocery Shopper Trends series on evolving grocery habits from shoppers surveyed this summer found that 70% of shoppers are concerned with rising grocery prices, down from 75% in February, illustrating that consumer concerns, while still elevated, have started to ease and reflect the decline in food inflation.”

Three of the six major grocery store food group indices for food-at-home rose on a monthly basis (adjusted) in August, and three decreased. Meat, poultry, fish and eggs (+0.8); cereals and bakery products (+0.5%); and other food-at-home (+0.2%) saw increases, while groups experiencing declines included dairy and related products (-0.4%); fruit and vegetables (-0.2%); and non-alcoholic beverages (-0.2%), BLS data indicated.

Year over year (unadjusted), five of the six food group indices posted increases, led by cereals and bakery with the largest gain at 6%. That was followed by nonalcoholic beverages (+4.8%), other food-at-home (+4.5%), fruit and vegetables (+2.1%), and dairy and related products (+0.3%). Inflation was flat for meat, poultry, fish and eggs.

Foodservice continues to see price deflation

The overall food CPI—including food-at-home and food-away-from-home—essentially held steady for August, up 4.3% year over year versus a 4.9% annual increase for July. Those numbers were down from upticks of 5.7% in June, 6.7% in May, 7.7% in April, 8.5% in March, 9.5% in February and 10.1% in January.

August’s food index repeated the 0.2% monthly gain in July, compared with increase of 0.1% in June and 0.2% in May, zero growth in April and March, and gains of 0.4% in February and 0.5% in January, according to BLS data. The food CPI hasn’t hit the 1% growth mark since climbing 1.1% in July 2022.

FMI food price inflation analysis-historical-Sept2023

From FMI-The Food Industry Association

In foodservice, inflation edged up on a monthly basis to 0.3% in August from 0.2% in July. Still, the uptick was down from 0.4% in June, 0.5% in May, 0.4% in April and 0.6% for March, February and January. Food-away-from-home pricing grew 6.5% annually for August but continued a downward trend from 7.1% in July, 7.7% in June, 8.3% in May, 8.6% in April, 8.8% in March, 8.4% in February and 8.2% in January.

“There is still work to be done to fully tame inflation, but the food industry continues to engage to make sure that Americans have the safest, healthiest and most affordable food supply possible,” Harig noted. “New FMI analysis that examined the value of Americans’ grocery dollar since 2001 found that despite inflationary increases and short-term price fluctuations, the real cost of groceries in the U.S. as a share of household income has remained remarkably consistent—and relatively flat—over the last two decades.”

FMI: Grocery price inflation steady historically

Indeed, FMI’s research shows that, with a few exceptions, average grocery prices have remained between 1% and 4% annually over the past 20 years—and on par with other
spending categories.

From 2003 to 2023, food and beverages averaged annual inflation of 2.88% and tallied total inflation of 76.52%, FMI reported. That’s behind 3.11% average and 84.62% total inflation for medical care and 2.91% average and 77.65% total inflation for other goods and services. Sectors with inflation below food and beverages include housing (2.73% average, 71.48% total) and transportation (2.62% average, 71.48% total). Across the 20 year period, overall inflation averaged 2.56% annually and totaled 65.82%.

FMI food price inflation analysis-low income shoppers-Sept2023

From FMI-The Food Industry Association

“Inflation has already started to cool dramatically in 2023, with grocery store prices—known as food-at-home—up 3.6% year over year through July of this year, down from an average increase of 11.42% in 2022,” FMI stated in its food pricing analysis report. “The USDA’s Economic Research Service (ERS) Food Price Outlook for 2023 has also revised its food-at-home inflation forecast down to an anticipated average of 4.9%, and there are indicators that the year could end even lower. Economic indicators suggest that food prices aren’t coming down immediately, but they are done skyrocketing and point to current pressures subsiding in 2024.”

FMI’s findings also revealed that consumers spend a bit less of their income on groceries, down to 6.68% as of 2021 from 6.92% in 2001. A recent uptick from 6.49% in 2019 to 6.58% in 2020 “is actually driven entirely by higher-income shoppers who tend to spend more on more expensive products,” FMI noted in its report. “In reality, the lowest-income shoppers actually spend less of their household income on groceries now than they did two decades ago.”

In 2021, low-income shoppers—defined as households with income before taxes of less than $13,900 a year—spent 22% of their income on groceries, up from 20.5% in 2020 but well below 27% in 2001, according to FMI.



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