Last year marked the first time in nearly 50 years that grocery store (food-at-home) prices were lower than those in the year before. In 2016, retail food prices decreased by 1.3%, as many food categories saw declining year-over-year prices, including beef and veal, pork, poultry, eggs, and dairy.
Looking at the last 50 years of Consumer Price Index (CPI) data for food at home reveals that retail food prices have, on average, risen 4% annually. However, the degree of the price change varied over time. High inflation in the 1970s — price increases as large as 16% — were precipitated by food commodity and energy price shocks. The last year that retail food prices did not increase over those of the previous year was 1967.
The unusual decline in retail food prices in 2016 can be attributed to a culmination of factors. Retail food prices, in general, are driven by the costs of several production factors, including commodity inputs, labor, packaging, transportation, and food processing. Declining prices for retail meats, eggs, and dairy in 2016 are largely a story about rising commodity production, especially for eggs. Retail egg prices declined by 21% in 2016 due to ever higher numbers of laying hens on farms. The cattle, hog, turkey, and dairy industries also saw upticks in the number of animals produced in 2016.
In addition to falling commodity prices, declining energy prices and a strong U.S. dollar played a central role in the food price decline. Lower transportation costs due to low oil prices and the strength of the U.S. dollar placed additional downward pressure on U.S. food prices in the first half of 2016. A strong U.S. dollar makes U.S. foods less fiscally attractive to other countries, leaving a larger supply of U.S. foods in the domestic market as well as making imported foods less costly.
Retail prices did not fall for all food categories in 2016. Fresh vegetable prices remained flat, and consumers paid 2% more for fresh fruits.
Information for this article is drawn from Food Price Outlook, by Annemarie Kuhns and David Levin, USDA, Economic Research Service.