USDA FORECASTS 2016 GROCERY STORE FOOD PRICE DECLINE

BY DTN Washington Insider | November 28, 2016

Food-at-home (supermarket) prices are now forecast to decrease between 1.25% and .25% in 2016, the first year since 1967 that grocery store food prices could reflect annual deflation, according to an updated forecast from USDA’s Economic Research Service (ERS).

“Recent declines in prices for beef and veal, poultry, and eggs” are behind the now-lower forecast, ERS noted. “Lower transportation costs due to deflated oil prices as well as the strength of the US dollar have placed additional downward pressure on food prices in the first half of 2016. A strong U.S. dollar makes U.S. goods less desirable to foreign markets, leaving more potential exports on the domestic market. Comparing the 2015 average price level with the 2016 level to date, the CPI for food-at-home is down 1.1%.”

Another factor: “Retail food prices have remained flat or decreased for eight of the first ten months in 2016.”

The reduction in grocery store prices also lowered the overall food price increase to a range of 0.25% to 1.25%, putting the rise in line with the lowest level seen since at least 1974 of an increase of 0.8% seen in 2010.

One area not revised is for forecast for food-away-from-home costs to rise 2.5% to 3.5%. “Food-away-from-home prices have been rising consistently month-over-month due, in part, to differences in the cost structure of restaurants versus supermarkets or grocery stores,” ERS observed. “Restaurant prices primarily comprise labor and rental costs with only a small portion going toward food. For this reason, decreasing farm-level and wholesale food prices have had less of an impact on restaurant menu prices.”

While forecast to rise in 2017, ERS economists now forecast that increase to be just 0.5% to 1.5%, down from their month-ago outlook. “Despite the expectation for declining prices in 2016, poultry, fish and seafood, and dairy prices are expected to rise in 2017,” ERS said. They included their usual caveat that weather, unforeseen events, the value of the US dollar or shifts in energy prices could alter the 2017 outlook.

Reductions in 2016 from forecasts the prior month were noted in meats, poultry, fish, eggs and dairy products, with individual meat products such as pork, beef and other meets revised down again.