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US food price inflation is still expected a range of 2% to 3%, according to USDA’s Economic Research Service (ERS), in line with the historical average of 2.5% and slightly higher than the 1.9% level registered for 2015.
With the data published for food prices in December, USDA now put the increase in food price inflation at 1.9% for 2015 compared to the range of 1.5% to 2.5% they issued last month. The level of increase for food away from home in 2015 is 2.7%, the same as the mid-point of their December forecast. Food at home posted a 1.2% increase compared to 2014.
As for 2016, USDA economists held their forecasts steady from the prior month at a 2% to 3% increase overall with food away from seen rising 2.5% to 3.5% and food at home costs rising 2% to 3% compared to 2015. Within the specific commodities, USDA economists now expect beef prices to rise up to 1%. That is down from a 1% to 2% outlook in December, and cereals and bakery products are seen rising 0.5% to 1.5%, down from a December outlook that these prices would increase 1.5% to 2.5% in 2016.
USDA economists also included their usual caveats for 2016 food prices – that weather could impact prices; oil prices could further lower costs at the retail level and the inclusion that they first noted in December of the potential for higher U.S. interest rates to increase the U.S. dollar value, hampering U.S. food exports and making imported foods less expensive.
As for beef, USDA noted that prices for beef and veal were down 2.4% from November to December and are down 4.3% versus year-ago levels. “December price changes were affected by declining U.S. beef exports, helping to place downward pressure on retail beef prices by increasing the supply of beef on the U.S. market,” ERS said. “Additionally, favorable pasture conditions in some areas in 2015 and lower feed prices have allowed cattle producers to feed cattle longer and to hold cattle for herd expansion.”
After the barrage of changes made in December and November outlooks by USDA economists, this relatively calm update still signals that food price inflation will remain near the 20-year average overall, will be potentially slightly above average for food away from home and be spot on the 20-year average relative to grocery-store prices. At early point in the year, it would seem most of the risk on food prices remains to the downside given the strength in the U.S. dollar. The shift from El Nino to neutral or La Nina conditions looms over the commodity sector, but any impacts there are not going to unfold until later this year.
