Grocery pricing still high despite relaxed inflation in August

For the second straight month, a relaxation in the Consumer Price Index (CPI) didn’t lead to much of an ease-up in food prices.

The August CPI for All Urban Consumers inched up 0.1% (seasonally adjusted) from July, when inflation remained flat overall on a month-to-month basis, the U.S. Bureau of Labor Statistics (BLS) reported Tuesday. Still, the level in August signaled extended relief for consumers in the wake of monthly gains of 1.3% in June, 1% in May, 0.3% in April, 1.2% in March, 0.8% in February and 0.6% in January, BLS reported Wednesday.

Year over year, the August CPI rose 8.3% (unadjusted), down from 12-month upticks of 8.5% for July, 9.1% for June, 8.6% for May, 8.3% for April, 8.5% for March, 7.9% for February and 7.5% for January.

Meanwhile, the food CPI — including food-at-home and food-away-from-home — dipped month over month in August but climbed on an annual basis. BLS said the food index edged up 0.8% for August, down from monthly increases of 1.1% in July, 1% in June, 1.2% in May, 0.9% in April, 1% in March, 1% in February, and 0.9% in January. Over 12 months, the food CPI was up 11.4%, surpassing a gain of 10.9% in July and still well above annual hikes of 10.4% in June, 10.1% in May, 9.4% in April, 8.8% in March, 7.9% in February and 7% in January.

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Little letup in grocery inflation

The food-at-home CPI for August climbed 13.5% year over year, topping the 13.1% rise in July and marking the biggest 12-month gain since the period through March 1979, according to BLS. Despite a month-to-month ease-up in August, the food-at-home index has increased steadily on an annual basis since the start of the year, up 12.2% for June, 11.9% for May, 10.8% for April, 10% for March, 8.6% for February and 7.4% for January.

On a monthly basis, the food-at-home CPI edged up 0.7% in August, representing the first increase below 1% since April. That compared with upticks of 1.3% in July, 1% in June, 1.4% in May, 0.9% in April, 1.5% in March, 1.4% in February and 1% in January. The latter gain came after just a 0.4% increase in December.

All six major grocery store food group indices rose for August, but not as much as in the previous month, according to BLS. The cereals and bakery products index saw the largest monthly increase at 1.2%, while the index for other food-at-home advanced 1.1%. Rising 0.5% in August were the indices for meat, poultry, fish and eggs; fruit and vegetables; and nonalcoholic beverages. Of note, the dairy and related products CPI inched up 0.3% month over month, which BLS said was the smallest increase in that index since November 2021.

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The steepest 12-month price hikes for August came from other food at home ( 16.7%), cereals and bakery products ( 16.4%), and dairy and related products (16.2%). Of the remaining major grocery store food groups, year-over-year increases were 13.4% for nonalcoholic beverages; 10.6% for meat, poultry, fish and eggs; and 9.4% for fruit and vegetables.

BLS reported that the food-away-from-home index was up 0.9% month to month and 8% year over year, rising from respective monthly and 12-month increases of 0.7% and 7.6% in June.

Excluding food and energy, the August CPI rose by 6.3% from a year earlier and by 0.6% from a month ago, a gain from upticks of 5.9% year over year and 0.3% month to month in July, according to BLS.

Energy costs, still the chief driver of elevated inflation rates, continued to relax in August, up 23.8% year over year but down 5% month over month, compared with an annual increase of 32.9% and a monthly decrease of 4.6% in July. Gas and fuel oil prices were up 25.6% and 68.8%, respectively, for the 12 months through August versus respective hikes of 44% and 75.6% in July. Month over month, prices dropped by 10.6% for gas and by 5.9% for fuel oil in August.

Still-high prices have shoppers cautious

Though the CPI declined in August, elevated prices for groceries and other consumer goods have shoppers wary, CPG market researcher IRI noted. Food-at-home prices rose 1.6% from the end of July to the end of August and were up 13.4% year over year through the week ended Aug. 28, according to Chicago-based IRI’s August 2022 Price Check: Tracking Retail Food and Beverage Inflation report.

“We are beginning to see consumers scale back purchases both in terms of units and volume in recent weeks, as retail food and beverage prices have continued to rise,” Krishnakumar (KK) Davey, president of thought leadership for CPG and retail at IRI and sister research firm NPD. “While retail food and beverage sales had been fairly resilient, we’re seeing signs of consumer stress, particularly among low-income households.”

Recent price moderation in other parts of the economy, such as gasoline, haven’t trickled through to help pull down high year-over-year food and beverage inflation, IRI said. For example, carbonated beverages and common fresh fruit categories saw the largest monthly price jumps in August, each up 5.3% from July, while butter/margarine/spreads represents the most inflated category, with prices up 30% from a year ago.

Similarly, even though prices in the coffee category edged up less than 0.3% month over month at the end of July, they remain over 18.6% higher year over year, according to IRI, which added that this is the case in most CPG categories

Consumers take action

Food price inflation has bitten into sales, as shoppers’ overall sales volume and units have declined. IRI said overall retail food and beverage unit sales are down 4.5% year over year, with volume sales decreasing 4%. Frozen dinners/entrées, cookies and coffee have seen the biggest volume drop-offs in categories with sharp price hikes, though some snack, candy and drink categories have shown more resiliency with more moderate sales volume declines despite much higher prices, IRI observed.

In an indication of value-seeking behaviors, shoppers are hunting for deals, cherry-picking grocery retailers offering the best value, and making more trips to mass merchants and club stores, IRI reported. Trips to food and beverage stores rose 3.5% year over year for the 12 weeks ended Aug. 21. Notably, quick trips climbed 6.7% and pantry stocking trips dipped 0.6% over the same period, IRI data show.

Low-income households are driving the change. Low-income shoppers, who drove most of food and beverage growth in 2021, are pulling back on food purchases as inflation increases.

Volume and unit sales of certain discretionary categories — such as frozen seafood, candy and snack bars/granola bars/clusters — have slowed significantly more in stores serving low-income households versus the overall market, IRI said, explaining that low-income customers are making trade-offs to feed their families amid high pricing. Nevertheless, shoppers have continued to trade up by driving volume share to premium brands in selected categories, including snack nuts and seeds, canned and bottled fruit, frozen entrées, fresh eggs and butter, the researcher noted.

“Consumers are buying less in discretionary food and beverage categories and are shopping more frequently in search of better prices,” Davey commented. “At the same time, consumers are willing to pay a premium for some categories — such as pasta, pasta sauce, butter and frozen entrées — which are considered affordable indulgences for more cash-strapped shoppers.”