Food pricing remains elevated, but signs of easing emerge

U.S. food prices were up 4.1% in August on an unadjusted basis from a year ago, outpacing a 1.3% year-over-year gain in the overall Consumer Price Index (CPI).

The U.S. Bureau of Labor Statistics (BLS) said Friday that the food-at-home CPI climbed 4.6% over the last 12 months, with pricing up for all six major grocery-store food groups. Fueling the increase were meat, poultry, fish and eggs, which rose 7.1% since August 2019, driven by a 9.6% surge in the index for beef. BLS reported that year-over-year upticks in other grocery food groups ranged from 2.7% for fruit and vegetables to 5.7% for dairy and related products.

Food-away-from-home pricing escalated as well, up 3.5% in August versus a year earlier. BLS said the index for limited-service meals gained 4.8% for the month, while the full-service meals index edged up 2.8% over the last 12 months.

Although the overall food CPI remains elevated compared with a year ago, the month-to-month trend indicates that grocery prices may be relaxing, albeit slowly.

The food index inched up 0.1% in August after dropping 0.4% in July, but that followed upticks of 0.6% in June, 0.7% in May and 1.5% in April — the latter marking a surge from an 0.3% increase in March, largely before the coronavirus pandemic stoked consumer demand for groceries and foodservice establishments were forced to shut down.

Related:Pandemic sways most Americans to eat at home more often

“The index for food-at-home fell slightly in August, decreasing 0.1% after falling 1.1% the prior month,” reported BLS, part of the U.S. Department of Labor. “The August decline was mostly caused by the index for meats, poultry, fish and eggs, which fell 1.7% in August, its second consecutive monthly decline after sharp increases in prior months. The beef index fell 4.4% in August after declining 8.2% in July. The cereals and bakery products index also declined in August, falling 0.2%.”

Nielsen reported that consumers are seeing higher grocery prices because of fewer promotions.

However, the other four major grocery food groups saw prices tick up in August. The index for dairy and related products rose 1.5% following declines in June and July. Similarly, the August indices increased 0.5% month-to-month for other food at home, 0.2% for fruit and vegetables and 0.1% for non-alcoholic beverages.  

“August food CPI was flat month over month,” Jefferies analyst Christopher Mandeville wrote in a research note on Friday. “The CPI-PPI [Producer Price Index] spread increased to 3.9% from 3.8% and remains elevated versus pre-COVID trends. Protein prices decelerated, most notably beef (-460 basis points),” he added. “Produce moved higher except fresh vegetables, with fresh fruits flipping positive. Egg inflation softened a touch, while the spread flipped positive for the first time since January.”

Related:Family meals take on renewed value amid pandemic

BLS said the food-away-from-home index was up 0.3% in August — the smallest monthly increase since an 0.1% uptick in April. In August, indices were up 0.4% for limited-service meals (after a 0.6% gain in July) and 0.1% for full-service meals (after an 0.4% increase in July).

According to market researcher Nielsen, consumers are now seeing higher grocery bills than before the pandemic and versus a year ago because of fewer promotions.

In an inflation study for its retailer and manufacturer clients, Nielsen found that consumers paid 4.1% more for groceries than in August 2019. The data is based on the prices shoppers pay for a basket of popular grocery items and includes in-store, curbside pickup and home delivery purchases.

Nielsen noted that, in August, 26.2% of units were sold on promotion, below the national average of 31.4% of items being purchased on promotion.

“This 5.2 percentage point decline across the entire store means shoppers have less opportunity to purchase items on sale and save at the register,” Nielsen said. “For shoppers, this means they are paying more than the pre-COVID time period.”

Fueling the August food-at-home price increase was the index for meat, poultry, fish and eggs, which rose 7.1% since August 2019.

Units sold on promotion are down 10 percentage points versus pre-COVID levels in the grocery department and down 12 percentage points in the household care category, Nielsen reported.

“The meat department has seen a resurgence of promotional activity, but this has done little to offset the total basket expenditure and ease the cost for shoppers and their grocery bills,” Nielsen added.

On Friday, top executives from The Kroger Co., the nation’s largest supermarket retailer, said the company expects the food-at-home trend triggered by the COVID-19 outbreak to continue. As a result, they said, Kroger will leverage its customer analytics and personalization capabilities to make price investments where it delivers the best value for shoppers and helps drive market share gains.

“We’ve had promotions throughout the pandemic, and it’s really on the things that matter. We continue to invest in price, and we think it’s really important,” Chairman and CEO Rodney McMullen said in a conference call on Kroger’s second-quarter results. “We think customers will look at it reflectively, that we’ve been there to support them throughout to help them stretch their budgets — waving the pickup fee, continuing to invest in promotions, continuing to invest in price, all of those are things that we believe will pay off. Our customers will reward us for what we’re doing over time. On market share, I specifically talked about fresh, but we continue to gain share in center store, fresh and all areas of the store. And our own brands continue to gain share as well.”

Chief Financial Officer Gary Millerchip noted that inflation in the fresh food departments was “pretty volatile” during the second quarter, but price investments helped hold the line on pricing for customers.

“In meat, produce and deli/bakery, cost inflation would’ve been higher than retail because we were investing in supporting the customer through the volatility in price and making sure we were building long-term loyalty,” Millerchip said in the call. “So I think we continue to be expecting to invest where it makes sense for the customer, but we feel very confident in our ability to balance those investments with cost savings.”

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