Food prices have fallen for nine straight months, the longest streak of deflation since 1960 with the exception the height of the financial crisis in 2009. These low food prices are a windfall for consumers, but are placing increased financial strain on farmers and grocers.
Unadjusted food-at-home (supermarket) prices, which represent an average of individual food consumer price indexes, are down 1.9 percent from last year. According to the U.S. Department of Agriculture, year-over-year prices from August 2015 to 2016 have declined 7 percent for beef and veal, 2 percent for pork, 4.9 percent for dairy products, 0.5 percent for fats and oils, 0.7 percent for cereals and bakery products, and 2.9 percent for poultry. On average, a gallon of milk is about 40 cents cheaper and a pound of ground beef is about 50 cents cheaper nationwide.
Egg prices have been especially volatile as a result of last year’s domestic bird flu outbreak. The outbreak of H5N2 resulted in the death of over 40 million birds, causing egg prices to skyrocket. However, production rebounded faster than expected and demand has not kept pace. Egg prices are now down 51 percent from 2015 highs. To counteract the current egg surplus, the USDA is buying about $11.2 million worth of eggs and egg products. In addition to the egg surplus, the USDA has also taken action to address the cheese surplus, which is at its highest level in 30 years. The USDA is set to purchase about 11 million pounds of cheese for $20 million from private inventories. The government then sends the surplus food to food banks and school lunch programs.
Economists have assigned a number of causes to these prices changes. While American production has remained strong in 2016, demand has declined, leading to excess supply. Overseas demand has tapered off, especially in China, due to anemic international growth and a relatively strong U.S. dollar that makes U.S. goods more expensive. Additionally, lower energy prices have cut transportation and refrigeration costs. Though these lower operating costs should be a boon for food retailers, cutthroat competition and the proliferation of discount chains, such as Aldi and Lidl, have negated any gains.
Grocer margins and stock prices are taking a hit. As the Wall Street Journal reports, at least five grocery retailers, including Walmart and Dollar General, mentioned core commodity deflation as a threat to their bottom lines in earnings calls last month alone. Kroger’s, Trader Joe’s, Dollar General, and Walmart have all slashed prices this year. As supermarkets continue to compete, consumers are reaping the benefits.
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