July blip blemishes decline in grocery price inflation

Grocery pricing ticked up on a monthly basis in July yet continued to sink from prior-year levels amid a general ease-up in overall inflation.

The July Consumer Price Index (CPI) for All Urban Consumers rose 3.2% (unadjusted) year over year, just above a 3% uptick in June, the U.S. Bureau of Labor Statistics (BLS) reported Thursday. That capped off 12 consecutive months of annual declines in the CPI, according to BLS.

Rounding out the 12-month period, the CPI grew 4% year over year for May, 4.9% for April, 5% for March, 6% for February, 6.4% for January and, in 2022, was up 6.5% for December, 7.1% for November, 7.7% for October, 8.2% for September, 8.3% for August and 8.5% for July.

Month to month, the July CPI inched up 0.2% (seasonally adjusted), the same as in June. Sequential growth in the CPI has varied but remained below 1% since last summer, coming in at 0.1% in May, 0.4% in April, 0.1% in March, 0.4% in February, 0.5% in January and, in 2022, at 0.1% in December, 0.2% in November, 0.5% in October, 0.4% in September, 0.2% in August and flat in July. The last month-over-month increases of at least 1% were gains of 1.3% in June and 1% in May of 2022.

“Base effects drove the top-line CPI higher this month—not a reacceleration in inflation, according to Erik Lundh, principal economist at business think tank The Conference Board. “Indeed, month-over-month top-line and core CPI rates were both unchanged from June. Inflation data for both June and July are encouraging and indicate that the Fed is seeing some of the results of its monetary tightening campaign.”

Source: U.S. Bureau of Labor Statistics

Downward macro trend holds in food-at-home pricing

Grocery price inflation for July stayed well below half of its year-ago level.

The food-at-home index was up 3.6% annually in July, continuing significant decreases so far in 2023 from 4.7% in June, 5.8% in May, 7.1% in April, 8.4% in March, 10.2% in February and 11.3% in January. Those figures had extended a slide from 13.5% in August 2022, while a 13.1% increase in July 2022 had ended a period of rising 12-month growth for the food-at-home CPI since the start of 2022.

Sequentially, food-at-home inflation rose 0.3% in July after coming in flat for June. May had marked an uptick, of 0.1%, following month-over-month dips of 0.2% in April and 0.3% in March, with the latter representing the first decline since September 2020, according to BLS.

Monthly gains in the food-at-home CPI, nevertheless, have remained below 1% since a 0.8% uptick in August 2022 and are a far cry from sequential growth of 1.3% in July 2022. This year started out with increases of 0.4% in January and 0.3% in February.

“The food index rose by just 0.2% for the month [in July], and the energy index rose 0.1%. Core CPI rose 0.2% month over month in July, versus 0.2% in June,” Lundh wrote in a blog post on Thursday.

Four of the six major grocery store food group indices for food-at-home edged up on a monthly basis (adjusted) in July, after three had declined in June. Cereals and bakery products and non-alcoholic beverages were flat sequentially for July, yet segments seeing increases were meat, poultry, fish and eggs ( 0.5%); dairy and related products ( 0.5%); fruit and vegetables ( 0.4%); and other food-at-home ( 0.2%), BLS reported.

On a yearly basis (unadjusted), meat, poultry, fish and eggs (-0.2%) was the only one of the six food-at-home group indices not to experience an increase. Cereals and bakery had the largest gain, up 7% year over year, followed by other food-at-home ( 5.4%), nonalcoholic beverages ( 5.4%), fruit and vegetables ( 2.9%), and dairy and related products ( 1.3%).

Source: U.S. Bureau of Labor Statistics

Foodservice prices elevated but coming down

The overall food CPI—including food-at-home and food-away-from-home—posted 4.9% 12-month growth in July, down from 5.7% in June, 6.7% in May, 7.7% in April, 8.5% in March, 9.5% in February and 10.1% in January.

Those numbers followed a steady decline in 2022 from 10.4% in December, 10.6% in November, 10.9% in October, 11.2% in September and 11.4% in August.

July’s food index showed a 0.2% month-to-month uptick, compared with 0.1% in June and following 0.2% in May, zero growth in April and March, and gains of 0.4% in February and 0.5% in January, according to BLS data. The food CPI hasn’t hit the 1% growth mark since climbing 1.1% in July 2022.

In foodservice, inflation has relaxed but remained elevated. The July food-away-from-home index rose 7.1% year over year versus increases of 7.7% in June, 8.3% in May, 8.6% in April, 8.8% in March, 8.4% in February and 8.2% in January.

Food-away-from-home inched up 0.2% month over month for July, down from 0.4% in June, 0.5% in May, 0.4% in April and 0.6% for March, February and January.

Extended high inflation has changed consumers

Twelve months of year-over-year decreases in the CPI haven’t swayed many shoppers to forgo some of the purchasing habits they developed during a prolonged period of elevated inflation, according to retail industry observers.

“Although prices are no longer increasing at the same rates as they were during peak inflation, consumers are still feeling the impact to their budgets from the lengthy inflationary periods leading from the past couple of years,” pricing expert Matt Pavich, a former merchandise buyer for Target, commented in an email.

“One thing is for sure: While inflation has cooled significantly and the economy appears to be in a stronger position than previously projected, consumers are still looking for ways to stretch their spend and find good deals,” noted Pavich, senior director of strategy and innovation at price optimization specialist Revionics, whose clients include 12 of the top 50 global retailers. “This will include everything from shopping more promotions, trying new private-label offerings, looking for value in bulk sizes and even switching their loyalty to retailers who offer better value.”

Excluding food and energy, the July CPI was up 4.7% from a year earlier and 0.2% from a month earlier, roughly the same as increases of 4.8% year over year and 0.2% month to month in June, BLS reported.

Gasoline and fuel oil pricing continued to relax in July, as gas prices were down 19.9% year over year (unadjusted) despite edging up 0.2% monthly. That compared with a 26.5% annual decrease and a 1% sequential increase for June. Fuel oil pricing in July was down 26.5% on a 12-month basis but up 3% monthly, versus declines of 36.6% yearly and 0.4% monthly in June.

“The CPI results are a positive for consumer spending overall. But there are many signs beyond CPI that show even middle-class consumers are feeling the impact of inflation on spending. With over $1 trillion in credit card debt, and student loan payments resuming, there are a lot of other pressures on consumer spending looming. But it looks like rapid rises in prices for everyday goods isn't going to be one of them,” stated Nikki Baird, vice president of strategy at retail technology firm Aptos, parent company of Revionics.
 
“However, one factor that remains to be seen: Will the Fed still raise rates anyway?,” added Baird, a longtime retail analyst, formerly with Forrester and PwC. “The consensus seems to be that they very well might. Especially with the rise in credit card debt, that may be the final straw for consumer spending increases, as debt and repayments take a larger chunk out of consumers' discretionary spend.”