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Food Inflation Comes in Hot Again, as Consumers Prioritize Price

Government data, consumer studies affirm surge in prices and shopper adjustments
Lynn Petrak, Progressive Grocer
inflation data
(Source: U.S. Bureau of Labor Statistics, Oct. 13)

Heading into a pivotal selling season, inflation continues its stubbornly upward pace. The U.S. Bureau of Labor Statistics (BLS) shared its latest data showing that the Consumer Price Index (CPI) for all items rose 0.4% in September, up from the previous month’s slight 0.1% uptick. On a 12-month basis, the general CPI was up 8.2%.

Again, food inflation was a major contributor to the overall index. The CPI for food at home climbed 0.7% from August to September and was 13% higher than the previous September. That’s well ahead of the CPI for food away from home, which rose 8.5% on a year-over-year basis.

According to BLS data, all six major grocery store food indexes increased during September, adding to this year's continual drumbeat of higher prices.  Fruits and vegetables came with a 1.6% price elevation, attributed in part to the ongoing drought in the Western part of the United States and other issues with the agricultural supply chain.

In other categories, the CPI for cereals and bakery products rose 0.9% last month while meats, poultry, fish and eggs ticked up 0.4% and the nonalcoholic beverage segment edged 0.6% higher. Dairy stayed steady, with the same 0.3% increase as the prior month.

From a year-over-year standpoint, cereals and bakery have seen the biggest spikes by the U.S. government's measure, with a 16.2% CPI increase, followed by dairy and related products at 15.8%. Other grocery categories have experienced a yearly index hikes between 9% and 15.7%.

Chicago-based research firm Information Resources, Inc. (IRI) also released an inflation report this week showing that higher prices continue but at a more moderate pace than in previous months. According to IRI's latest data, food and beverage prices rose 1% in September over August, while the yearly inflation rate held even in September compared to the previous month.

IRI also found that inflation is, if not all over the board, varying across the store. For example, prices in the adult beverage category were up 4.2% compared to a year ago, while dairy prices were 19.6% higher and frozen foods and meals were 18.4% more on a year-over-year level.

Impact on Upcoming Holidays

The latest government data is likely to lead the Federal Reserve to boost the interest rate and, at least in the short term, caused some stocks to sink on Wall Street. Analyst Matt Pavich, senior director of retail innovation at price optimization solutions company Revionics, weighed in on the implications of seemingly-sticky inflation. “While the numbers may shift and vary by region and retail category, what remains true is that inflation and its impact on consumers will play a major role in the upcoming holiday months. At current, we’re facing an economic split, what economists describe as bifurcation, of household incomes and their current behaviors,” he remarked.

“Retailers will absolutely need to focus on their price perception and provide consumers with great value and offers on the items that they care most about across all channels headed into the winter,” he continued. “Throughout the year, this has mostly involved using analytics and AI to surgically balance pricing moves in response to rising costs with the goal of meeting the demands of budget-conscious consumers. As the holidays approach, this remains as important as ever, but also means that promotions and markdowns will become more critical.”

How Consumers Are Coping

Other information released this week underscores the effects that persistent inflation, especially in food and fuel, is having on wary consumers. New research from research company Mintel shows that nearly a third (31%) of parents in the country are struggling to cover their daily expenses and a majority of 56% do not consider themselves to be financially healthy. Even more striking, 94% of those polled by Mintel said they are currently worried about inflation.

Of note to grocers, Mintel’s research shows that 62% of consumers prefer lower prices over a convenient shopping experience. Brands are less important in this inflationary environment, as 63% of shoppers say that brand name isn’t important to them when browsing most categories, even as they value quality.

“As consumers struggle to adapt to rising prices due to inflation and product shortages, they are likely to continue choosing the best price over the more sustainable and more expensive option,” noted Lisa Dubina, associate director of culture and identity at Mintel. “Understanding that now is a difficult time for retailers to offer more discounts due to challenges like supply chain issues and the rising price of labor cutting into profit margins, offering creative perks and benefits to customers can increase the value of purchases and help build long-term customer loyalty. Now more than ever, it’s important for brands to not only communicate the value of their products and services but also prove it to consumers who are increasingly looking to avoid financial risk or waste,”

Likewise, IRI reported that consumers are coping with inflation with changes in behavior, like making more quick trips and buying larger package sizes. Additionally, IRI found that shoppers are bypassing categories that have been hit hard by price hikes; sales in the deli meat, fish, frozen dinner and shelf-stable dinner categories each decreased by more than 10% in September.

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