If you have been to the grocery or supermarket recently, you might notice a lot of price increases on some shelves. Although this has been anticipated before the year started, shoppers are still wondering why these price tags are not going down. Inflation has been stickier than many thought, particularly in key categories everyone needs to buy, like fuel and food.
In a recent survey released by the Purdue University Center for Food Deman Analysis and Sustainability, researchers found the majority of U.S. consumers expect more food price increases throughout the year. Specifically, the average rise these consumers expect is 3.7%, or a little higher than where inflation is predicted to be. The survey involved over 1,200 consumers throughout the U.S. and assessed food spending, values, thrust and satisfaction in information sources.
The 26-month survey also showed an 11.3% peak in U.S. food prices surge in 2022, but it has cooled down to 2.6%. According to the lead author of the survey and Purdue professor Joseph Balagtas, although inflation has declined, it’s still present in the economy.
Consumers expect more increase in food price inflation in the next 12 months.
Global Food Price Crisis
Global food prices likely reached a turning point this year. Oxford Economics forecasts a decline in 2024, easing pressure on consumers. Abundant supply, especially in wheat and corn, is driving this shift.
Recent months saw abundant harvests of staple crops, driving prices down. Wheat futures dropped around 10% year-to-date, and corn futures about 6%. Increased production followed high prices after Russia invaded Ukraine in 2022. Oxford predicts record corn and slightly lower wheat harvests for the current marketing year.
Grain supply tensions in Russia and Ukraine have eased. Ukrainian agricultural exports remained strong despite the collapse of the Black Sea Grain Initiative in July last year. Russian wheat exports flooded international markets, maintaining low prices. Wheat and corn, key staples globally, significantly impact consumer food budgets.
While wheat and corn prices dropped significantly, rice prices rose due to export restrictions from India, a major rice producer. Poor harvests in India last year also contributed to the price increase. Despite falling commodity prices, rough rice futures rose 8% this year. Global food prices decreased by 9% in 2023 but saw a slight rebound in March due to higher dairy, meat and vegetable oil prices. Oxford Economics predicts a further 5.6% price decline this year but warns of potential upward risks due to adverse weather conditions.
Bad weather affected agribusinesses, and cocoa prices hit records due to challenges faced by West African farmers. If poor weather persists, it could impact harvests in other regions too. Despite current low prices, rice and wheat prices might rise, significantly if demand from Africa and Asia increases and India imposes more export restrictions.
Food Inflation Forecast
The survey led by Purdue University was released in February 2024. With a 3.7% expected inflation rate, this has surpassed the current Consumer Price Index (CPI) inflation rate of 3.2%.
In the same month, weekly food expenses increased by 7% compared to the previous year, reaching $195. Affordability was a top concern for consumers when purchasing food. The report emphasized that consumers prioritize taste and affordability, highlighting the importance of accessible and healthy food options. Those expecting higher food prices valued affordability more than others.
In March 2024, a survey explored consumer expectations for food prices and their connection to political affiliation and media trust. Republicans showed higher anticipation of price increases (71%) compared to Democrats (56%). Similarly, those trusting Fox News predicted more price hikes (67%) than those trusting CNN (53%). That suggests political leanings influence food price perceptions.
Joseph Balagtas, an agricultural economicsprofessor at Purdue University, observed that since the survey’s inception, a Democratic administration had been in power. He highlighted a correlation between food price expectations and political affiliation, noting a partisan bias in inflation expectations. Additionally, the study revealed that consumers who anticipate price increases prioritize affordability more than those expecting prices to fall.
Americans reported spending $127 a week on groceries and an additional $68 at restaurants in February, up 2% from January and 7% from a year ago. Compared to February 2022, food prices were 19% higher, indicating growing concerns about inflation.
While official data showed food inflation at 2.6%, consumer expectations remained high at 3.7%, suggesting a disconnect between official figures and public perception.
Items That Might Get More Pricey
Expect higher prices in key meat categories such as beef. Last year, beef prices saw an 8.7% increase and are still expected to see some rise this year. According to the Vice President of Partnerships for Jow Shane Finnegan, beef prices hit record highs in 2023 due to a historic drought that has consistently affected ranches and owners.
Sugar and sugar substitutes saw a 6.8% increase last year. Finnegan anticipates continued price rises in 2024 for sugars, fats and oils due to global demand driving up biodiesel and ethanol prices. He explained that biodiesel is made from fats and oils, and ethanol from sugar, among other sources, suggesting that increased production of these fuels will lead to reduced stock and higher prices.
Additionally, environmental factors like wet weather and bacterial disease will drive up prices for citrus fruits such as oranges, lemons and limes. Finnegan mentioned that citrus crops struggle in wet, cooler weather, leading to higher prices for orange juice and margaritas in 2024, affecting the cost of frozen concentrate citrus beverages as well.
Items That Might Stay Cheap
Eggs, which skyrocketed by 70.1% in 2023, are finally expected to see a decline in prices. Finnegan predicts a return to normalcy, with a moderate growth in chicken production anticipated this year. Experts estimate egg prices to drop by 14.7%, offering relief to consumers and making breakfast more affordable.
Weather conditions affect vegetable prices, but there’s some positive news. With California’s El Niño, leafy greens like lettuce and kale are thriving, resulting in stronger yields and lower prices. Although potatoes are one of the most affordable grocery items, they saw a 19.9% annual price hike rate. However, recent data showed a 2.8% price decrease in November 2023.
Bottom Line
Overall, consumer prices will still continue to rise in 2024. In fact, that has posed a hurdle for the Federal Reserve and President Joe Biden in his reelection campaign.
Inflation hit 3.2% compared to last year, with core prices, excluding food and energy, also climbing 0.4%, higher than the Fed’s 2% target. Gas prices surged 3.8% in February, and alongside that grocery prices also saw some slight increases. Shoppers should still brace themselves for more increases this year and prepare their grocery lists ahead of time.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
