Economic Tidbits

Consumers Paying More for Food

Rising food prices have been featured in countless media stories highlighting the negative impacts on consumers and the potential for food shortages across the globe. According to the Bureau of Labor Statistics (BLS), the consumer price index (CPI) for food in the U.S. rose 9.4 percent for the year ending in April, the largest increase since April 1981 (Figure 1). In fact, food price inflation exceeded the overall CPI for April, which registered at 8.3 percent. U.S. consumers aren’t the only consumers facing higher food prices. The United Nations Food and Agricultural Organization reported its Food Price Index, a measure of monthly change in international prices for a basket of food commodities, was up nearly 30 percent in April compared to April 2021.

Figure 1. U.S. Consumer Price Index for Food

Source: Tradingeconomics.com & U.S. Bureau of Labor Statistics

What underlies the increases in food prices? Like many economic challenges, there isn’t one simple answer. Many entities play a role in getting food to the grocer’s shelves. Most consumer spending on food goes to marketing, processing, packaging, transportation, and other expenses incurred beyond the farm gate. Figure 2 provides a breakdown of where a food dollar spent goes among 12 industry groups as estimated by the USDA Economic Research Service. Farm production accounts for just 8 cents while the remainder of the dollar goes to the many other activities needed to get food on the shelves. While commodity prices have increased compared to last year, only a small portion of the increases are reflected in the rising cost of food.

Figure 2. Food Dollar–2020

Source: USDA Economic Research Service, Food Dollar Series

Instead rising wages and costs for packaging, transportation, energy—the energy price index rose 30.3 percent alone over the past year—and material and labor shortages and shipping delays are affecting participants all along the supply chain. The extra costs are compounded along the chain and ultimately result in higher prices for food.

Consumers have many food options at many price points because of the diverse U.S. food supply chain. But countless and diverse players also mean broad inflation affects many entities along the chain ultimately resulting in higher prices for consumers. The USDA predicts food-at-home prices will increase between 7-8 percent this year while prices for food-away-from-home will increase 6-7 percent. This will be, by far, the largest increases in food prices seen in several years. However, there is a silver lining, most economists expect inflation will soften in 2023. If so, food prices should soften as well.

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