Rita Coolidge’s hit song in the 1970s “(Your Love is Lifting Me) Higher & Higher” comes to mind when thinking about food prices this year—only the lyrics should be changed to “food prices are lifting higher, higher than they’ve ever been lifted before.” Evidence of higher food prices can be found in most any store and restaurant. The annual American Farm Bureau Federation Thanksgiving dinner survey found the cost of a traditional holiday dinner had risen 14 percent compared to last year. The USDA Economic Research Service showed prices in October for food consumed at home were 5.4 percent higher compared to October 2020. Prices for food consumed in restaurants in October were 5.3 percent higher. Beef and veal have seen the largest price increase year-to-date at 7.6 percent (Figure 1). Fresh vegetables, the smallest increase at 0.8 percent.
Figure 1. Change in CPI for Food
Higher food prices are not just a phenomenon in the U.S. The United Nations Food and Agriculture Organization (FAO) says global food prices have risen by more than 30 percent in the last year (Figure 2). The FAO food price index in October was up 31.3 percent compared to October last year. The soaring costs of cereals and vegetable oils are primarily responsible for the increase. The cereal price index in October was up 22.4 percent from October 2020 and the vegetable oil price index was at an all-time high. Production problems for corn and wheat, labor shortages, cost of transportation, growing import demand, palm oil production issues in Malaysia, and rising oil prices are contributing to the higher costs.
Food expenditures are the third-largest consumer-spending category behind housing and transportation, so price increases get noticed. The ERS forecasts prices for food consumed at home will increase 2.5-3.5 percent this year and prices for food consumed outside the home will increase 4.0-5.0 percent. However, the price increases are projected to moderate in 2022. Maybe next year Kink’s tune “Low Budget” will come to mind.
Figure 2. United Nations FAO Food Price Index