Grocery and restaurant prices are projected to moderate, after 2 years of sharp increases

Following two years of skyrocketing food costs, consumers could get some relief this year in supermarket aisles, new federal data shows.

Grocery prices are projected to inch 1.6% higher this year, while prices at restaurants are expected to bump up 5%, according to the U.S. Department of Agriculture, which forecasts food prices based on data from the Consumer Price Index, the U.S. Department of Labor and other sources.

While that's up, it's not as much by comparison to 2023, when grocery prices climbed 5% while food purchased away from home, i.e., at restaurants, spiked 7.1%, federal data shows. Increases in 2022 were even larger,

Overall, total food costs are projected to climb 2.9% this year after prices climbed 5.8% in 2023 and 9.9% in 2022.

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The 2022 spike was the third highest in 49 years, USDA data shows, beaten only by increases recorded in the inflation-wracked 1970s. Food prices climbed 14.3% in 1974; 11% in 1979; and 9.9% in 1978, matching the 2022 increase.

While increases in the other years weren't as sharp, they have been persistent. Since 1974, annual prices for food prepared at home have fallen only twice — in 2016 and 2017. Annual prices for all food and restaurant food have never declined over five decades, federal data shows.

“Typically, food prices do not decrease significantly,” said Megan Sweitzer, a USDA agricultural economist, speaking at the agency’s 100th annual outlook forum this month.

Why is food price inflation slowing?

One reason prices are moderating is that the impact of Russia’s 2022 invasion of Ukraine is beginning to recede, Sweitzer said. Russia is a leading global supplier of oil, gas and fertilizers, and Ukraine is a major exporter of wheat, corn and sunflower products.

Disruption in those supplies caused exploding costs to ripple across the supply chain globally, increasing prices for everything from fertilizer used to grow crops to fuel for tractors and corn fed to cows.

The war resulted in energy prices in the U.S. spiking 25% in 2022, Sweitzer said, but they fell 5% in 2023. And the prices of corn, soybeans, wheat and other grains also have dropped from their 2022 highs. Corn prices are expected to average $4.40 per bushel this year, nearly 33% lower than two years ago. And soybean prices are forecast to be 21% lower than in 2022, at $11.20 per bushel, the data shows.

Disease and other factors also impacted prices. For example, highly pathogenic avian influenza drove egg prices 32% higher in 2022, but they increased only 1.4% last year. Even with outbreaks in November and December that killed 20 million laying hens, including 2.7 million in Iowa, the USDA expects egg prices to drop 2.8% this year.

Will favorite foods like beef and pork be more affordable?

Beef and veal prices are forecast to climb 2.2% this year, due to strong demand and tight supplies, after rising 3.6% last year, 5.3% in 2022 and 9.3% in 2021, the USDA data shows. The price of pork is forecast to decline 0.5% this year, given large supplies and soft demand.

Pork prices last year shrank 1.2% after climbing 8.7% in 2022 and 8.6% in 2021.

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It's a sharp shift from the 2020 pandemic, when grocery industry executive Andrew Harig said he attended two dozen meetings about bacon.

"People couldn't get enough bacon. And we worried if we didn't have it in stock, what are people going to do?" Harig, a vice president at FMI, The Food Industry Association, said at the USDA forum.

Some groups were "worried people would go wild in the streets," he said. Now with the pork oversupply, "you're likely to see some sales."

What impact do rising food costs have on consumers’ budgets?

Sweitzer said food costs consume about 12.8% of U.S. families’ household budgets, the third-largest expenditure after housing at 33.3% and transportation at 16.8%.

Despite the prices increases, over the past 40 years, families are gradually spending less of their budgets on food, Sweitzer said. The share bumped as high as 15.1% in 1990 and dropped to 11.9% in 2020, when restaurant spending declined during the global COVID-19 pandemic.

Groceries make up about 60% of families' food spending, with 40% spent at restaurants, she said.

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At 17.1%, the largest share of spending on groceries is in the category of “other foods,” which includes fats and oils, snacks, baby food and other products. About 12% is spent on meat, poultry and fish, and about 10% goes for fruits and vegetables. Cereal and baked goods account for nearly 8% of spending, nonalcoholic drinks, 7.6%, and dairy, 5.5%.

From December 2017 to last year, grocery costs climbed 25%, she said.

Why do people worry more about spending at the grocery store than at a restaurant?

About 70% of U.S. consumers say they are concerned or very concerned about spending in the grocery store, said Harig, the FMI vice president, citing FMI polling data.

The concern outpaces worry about rising gas prices at 61%; rent and housing costs, 56%; food from restaurants, 51%; and clothing, 44%, said Harig, vice president of FMI tax, trade, sustainability and policy development.

Concern about grocery store food prices is down from 75% a year ago and restaurant food at 55%, he said. Consumers are less concerned about restaurant prices, because “a lot of people still view that as a luxury,” he said. “Buying food for the home is not.”

Harig said people experience rising food prices differently from other growing costs because they encounter them more frequently.

“People pay rent once a month,” he said. Or they fill their vehicles once every seven to 10 days. Men go to the grocery store 1.7 times a week and women, 1.5 times. "They’re going frequently … and seeing higher prices.”

Forty-two percent of consumers are worried about having enough money to buy the food they need, Harig’s data shows. Before COVID-19 hit, 26% of consumers were concerned about having enough money to buy groceries.

“That’s gone way up, and it continues to stay high,” Harig said. “That’s concerning to us.”

How are consumers handling higher prices?

About half of Americans are looking for grocery store deals, FMI’s data shows, while 41% are buying store brands; 32% are buying fewer groceries; 30% are using store loyalty programs more; and 23% are buying in bulk.

“Almost everyone is looking for a strategy,” Harig said, adding that shoppers also are buying more “shelf stable” products like rice, pasta and other goods that last longer.

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Also, higher prices are leading them to replace some products with others, he said, with shoppers “going for a cheaper cut of meat. Instead of steak, you go with hamburger. Chicken thighs instead of breasts.”

But while consumers are looking for value, its definition is changing. It used to be mostly about price, he said. And while “that’s still important," Harig said, it also incorporates nutrition, freshness, minimal processing, convenience and where the product was sourced, among other issues.

Donnelle Eller covers agriculture, the environment and energy for the Register. Reach her at deller@registermedia.com or 515-284-8457.

This article originally appeared on Des Moines Register: How fast will food prices rise this year? It's good news for consumers