Is food deflation easing? Food-at-home index flat in January

21-Feb-2017 - Last updated on 05-Aug-2019 at 08:24 GMT

The Consumer Price Index (CPI) for food-at-home — a proxy for grocery-level inflation — was flat in January, after months of declines, with higher prices in eggs, dairy, meat, fish & poultry offset by lower prices for fruits & vegetables, non-alcoholic beverages, cereals and bakery products.

According to the Bureau of Labor Statistics, the index for dairy and related products rose 0.8% in January vs the previous month, while the index for meats, poultry, fish and eggs rose 0.7% (largely due to a big increase for eggs), and the index for 'other food at home' rose 0.2% month-on-month.

In contrast, the index for fruit & veg declined 1.7%; while the index for non-alcoholic drinks was down 0.3% and the index for cereals and bakery products was down 0.1%.

Over the past 12 months, the food at home index declined 1.9%, largely reflecting a 4.9% decrease in the index for fruits and vegetables. The index for food away from home, in contrast, rose 2.4% over the past 12 months.

However, analysts say the Producer Price Index figures (+1.1% for food in January) suggest that inflation could return this year.

California weather impact

In a Feb 18 commentary, Morningstar director of economic analysis Bob Johnson said: “Food prices, which helped mask inflation in other categories last year, also appear to be going back in the other direction again, primarily as a result of higher restaurant prices, a potential unintended consequence of higher minimum wages in some regions.

“Though, even grocery store prices were no longer going down between December and January. Meat prices were up some again in January after a string of declines. Given the nasty storms hitting California yet again, we remain a bit worried about what may happen to food prices next month.”

According to USDA's economic research service, recent declines in retail food prices reflect increased production for many commodities, lower transportation costs as a result of deflated oil prices, and a strong dollar (which makes US goods less desirable to foreign markets, leaving more potential exports on the domestic market).

However, while food-at-home prices declined in 2016, restaurant prices have increased, in part, owing to differences in the cost structure of restaurants versus supermarkets or grocery stores (restaurant prices are more greatly impacted by labor and rental costs).

The Consumer Price Index (CPI) is a measure of the average change in prices over time of goods and services purchased by households.