Reading the Inflation Tea Leaves
It’s a good news/bad news kind of report on inflation. First, the not-as-great news: The latest Consumer Price Index (CPI) data from the U.S. Bureau of Labor Statistics (BLS) shows that overall inflation inched up 0.2% in July following June’s first decline since May 2020.
That said, those looking for a silver lining can find it in the fact the year-over-year (YoY) rate came in at 2.9%, the lowest rate since March 2021.
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Results were similarly mixed in grocery. Overall food inflation edged 0.2% higher in July and grocery inflation was close to, but not quite, zero, up 0.1%. On the brighter side, the food-at-home index was 1.1% on a YoY basis, much lower than the overall yearly pace.
Within grocery categories, the CPI was likewise a case of ups and downs. The index for meats, poultry, fish and eggs went up 0.7%, the fruits and vegetable category increased 0.8% and nonalcoholic beverages climbed 0.5% in that time frame. Categories that experienced a downturn in price included cereals and bakery (-0.5%), dairy and related products (-0.2%) and “other” food at home (-0.5%).
Andy Harig, VP of tax, trade, sustainability and policy development at FMI - The Food Industry Association, shared a glass-half-full take on the latest data. “Today’s CPI numbers show that the pace of year-over-year inflation continues to moderate, with food prices remaining a bright spot in the data relative to other sectors like shelter and transportation services,” he remarked. “Indeed, year-over-year food-at-home inflation at 1.1% remains below the 2.9% increase in overall inflation and demonstrates that eating at home continues to be an economical way for families to manage their food budgets.”
Harig shared an additional behind-the-numbers view. “Importantly, even though certain food supply chain inputs like energy rose significantly according to the July Producer Price Index (PPI), the food manufacturing PPI increased less than 0.1%. This suggests that overall supply chain cost pressures are continuing to ease, which also bodes well for food prices in the short and medium term,” he declared, adding, “Taken together, the economic outlook for food prices remains positive. While it is true that black swan events can occur, indicators are pointing to continued progress on addressing food price inflation – which is welcome news for both the food industry and consumer alike.”
Another industry analyst noted that the easing YoY inflation rate may signal a light at the end of the proverbial pricing tunnel. “This might eventually help bridge the perception gap between the actual economy and how people feel about it,” observed Thomas Weinandy Ph.D., research economist at Upside. “Why eventually? Because we haven’t seen changes yet in shopping behavior, even with positive trends. For example, some of the smallest price increases over the past year have been in essential goods like groceries (+1.1%) and gasoline (-2.2%). Despite this, new data from Upside shows cross-shopping behavior is still happening: the average consumer shops at three grocery stores and two and a half gas stations per month.”
Weinandy continued, “It’s less about inflation dropping from 3% to 2% and more about consumers needing more time for the painful memory of high inflation to fade. It’s been over two years since inflation peaked at 9%, but it will take more time until consumer behavior catches up to the good news.”
