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Food prices are skyrocketing and not just because of inflation

Over the past 12 months, grocery prices soared 13.1% — the largest annual increase since the year ending in March 1979, the Bureau of Labor Statistics said Wednesday.

Prices of almost every grocery item have ballooned since last year.

The price of eggs soared 38%, and the prices of other commodities also jumped: flour 22.7%, poultry 17.6%, milk 15.6%, ground beef 9.7% and bacon 9.2%. Fruits and vegetables are 9.3% more expensive.

When commodity prices fall, it takes time before those lower costs are passed on to consumers. In addition, a lot of other costs for producers – fuel, labor and packaging – are also high.

And demand has increased as supply has varied.

Demand for food is increasing

Unlike discretionary goods, consumers cannot stop buying food when prices rise. However, they can opt for less expensive options. Producers, grocers and restaurant operators have noticed that consumers are actually trading less — exchanging high-priced items for more affordable ones.
Earlier this week, Tyson (TSN)While interest in chicken is increasing, demand for steak is declining, he said. Wendy’s (WEN) Traffic has been affected as some customers decide to pack lunches or eat breakfast at home, CEO Todd Penegor said in a post-earnings analyst call on Wednesday.

Penegor said about 82% of meals were eaten at home pre-pandemic, but that figure has since jumped three percentage points and remains there.

Price increases took a breather in July, fueling hopes that inflation had peaked.

“Consumers are a little more strapped, so some more meals are prepared at home,” Penegor said. “Inflation is up, so net disposable income is pinched a bit.”

Restaurants are also raising prices, but at a slower clip: In the 12-month period through July, menu prices rose 7.6%, less than overall inflation.

In addition, food prices are largely unaffected by current government efforts to curtail spiraling costs.

Federal Reserve Chair Jerome Powell agreed as much during a Senate Banking Committee hearing in June, saying that raising interest rates to fight inflation won’t lower food prices.

“Food and energy are affected by global commodity prices, saying, ‘Hey, these things aren’t really directly under your control,'” noted Michael Gapen, head of US economics at Bank of America Global. Research.

Basically, the thinking goes like this: Because the US can’t control international factors like the war in Ukraine and high shipping costs, it can’t fully control domestic food prices.

What’s more, the US government doesn’t have as much food stockpiles as it does oil, noted Rob Fox, director of knowledge exchange at CoBank, which provides financial services to agricultural businesses.

“The government has no ability to release wheat and corn and cheese and other surplus stalks,” Fox said.

Which is more expensive in June?

The result is consistently higher prices in the grocery aisle, with some items seeing bigger month-to-month spikes than others.

In July, adjusted for seasonal swings, egg prices rose 4.3% compared to June. Coffee and peanut butter are each 3.5% more expensive. Flour prices increased by 3.2% and bread prices by 2.8%. Cheese jumped 2%, while chicken gained 1.4%.

There was some relief though. Citrus fell 3.2% and whole milk fell 1.4%. Uncooked beef tenderloins fell 1.3%, and uncooked steaks fell 1.1%. Ham is 1% cheaper.

The biggest drop was in hot dog prices, which fell 6.1%.

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