Will Consumers Balk at Higher Food Prices?
The higher cost for Thanksgiving dinner isn’t only the latest indicator of rising food prices. October figures from the Bureau of Labor Statistics show prices for food-at-home rose 12.4 percent over the past 12 months while prices for food-away-from-home increased 8.6 percent. Consumers are paying more across all food categories. Prices on cereals and bakery products increased 15.9 percent over the past year. Prices on dairy and related products rose 15.5 percent. Increases for other food groups ranged from 8.0 percent (meats, poultry, fish, and eggs) to 15.4 percent (other food at home). The overall inflation rate is 7.7 percent.
Economists are watching consumers closely to gauge their reaction to higher prices. Surveys by Purdue’s Center for Food Demand Analysis and Sustainability show expenditures on food-away-from-home are at their lowest level since February, suggesting consumers are reducing discretionary food spending. Other sources suggest consumers are shopping for discounts or substituting more expensive goods with less expensive ones. So, consumers are adjusting their food purchasing behavior somewhat due to higher prices.
For Nebraska’s cattle sector, consumer spending on beef is important to watch. Derrell Peel, extension livestock economist at Oklahoma State University, says per capita retail beef consumption will likely be higher in 2022 compared to 2021. Peel writes, “The fact that retail beef prices this year are averaging higher at the same time as consumption is increasing is an indication of strong beef demand.” He concludes that beef demand appears to be steady and strong at the end of 2022. Good news for Nebraska cattle producers.
Consumers’ food purchases help shape the size of agriculture’s economic pie and their responses to higher food prices trickle-down to farmers and ranchers. So far, it appears consumers are making purchasing adjustments in response to higher prices, but spending remains resilient. Nevertheless, consumer behavior bears watching as the U.S. continues to struggle with inflation.
