USDA Forecasts Slow Inflation in 2019

Prices for food at U.S. grocery stores are expected to rise slightly in 2019, but the rate of increase is likely to remain below historical averages for the fourth straight year and may include deflation in key categories such as pork, fats and oils, according to the U.S. Department of Agriculture's (USDA) Economic Research Survey.

The USDA’s Food Price Outlook, published this week, forecasts at-home food prices to rise between 1% and 2% in 2019. That would represent an increase from flat to 1% inflation expected this year but still below the 20-year average of 2.1% year-over-year grocery inflation, the USDA said. The report also noted the gap between prices paid for food in grocery stores and in restaurants would continue to widen next year, with the USDA forecasting 2% to 3% away-from-home inflation next year.

Grocery Price Outlook 2018-2019

Source: USDA Economic Research Service

Restaurant prices comprise a higher percentage of labor and rental costs than grocery store food, accounting for the difference in rates, the report noted.

Low inflation, which the USDA attributes to factors including production and growth yields, puts pressure on retailers to move more units to leverage costs, which can lead to decreased margins. A round of stubborn deflation in 2016 and 2017 proved ruinous to numerous retailers and distributors, and a slower-than-expected return to inflating prices this year, particularly in categories such as fruits and vegetables, continues to challenge supermarkets.

Counteracting supply-led deflation are rising costs for electricity, fuel and production, which will place upward pressure on prices, the USDA said.

According to the survey, prices for pork, eggs, fats and oils and nonalcoholic beverages could see prices decline next year, while the agency is expecting rebounding prices for fruits and vegetables, largely stagnant this year.