Published: August 25, 2009
Prices for beef, milk, eggs and some other grocery items have been dropping for several months, providing relief for consumers who suffered through the steep increases of a year ago. But prices are likely to start edging upward again as the economy recovers, according to a new federal report and economic analysts.
“The impact from lower energy prices on grocery store prices has largely been played out, and so we’re now looking at grocery store prices to rise modestly through the end of the year,” said Mark Vitner, a managing director and senior economist at Wells Fargo.
The government report, by the Economic Research Service of the Department of Agriculture, said that grocery prices decreased 0.5 percent in July, compared with June. Compared with July 2008, when overall food costs were surging, grocery prices in July were down 0.9 percent.
In several food categories, prices dropped sharply. Beef fell 2.3 percent in July, compared with June, the eighth decrease in the last nine months, according to the report. Egg prices were down 2.7 percent from June to July and were 21.3 percent below their level in July a year ago. Milk prices declined 0.4 percent in the month, the 10th decline in the last 11 months, and were 18.4 percent below July 2008.
The national average price for a gallon of fresh whole milk in July was $2.99, compared with $3.96 in the same month a year earlier, a 25 percent drop, according to federal data.
Prices for fresh fruit and vegetables were also down markedly compared with their levels a year ago.
In contrast, some food prices rose compared with last year, including breakfast cereals, sugar and carbonated drinks.
Over all, the Agriculture Department forecast that prices for what it calls “food at home,” a category that includes purchases at grocery stores, convenience stores and farmers’ markets, will rise 2 to 3 percent this year. Last year, the department said, prices for food at home rose 6.4 percent, the highest jump in nearly two decades.
“We do expect some price increases with the recovering economy,” said Ephraim Leibtag, a senior economist at the Agriculture Department. “Our numbers here imply there has to be some additional inflation in the next six months to get out of the negatives we’re in right now.”
Bill Lapp, president of Advanced Economic Solutions, a consulting firm that specializes in analysis of food commodity costs, said that even with only a modest gain this year, food inflation was expected to outpace the overall rise in the Consumer Price Index, which he said could be close to zero for the year.
Mr. Lapp said that one reason food prices would continue to rise was that commodities like corn continued to trade above historical averages, even though they had come down from the unusually high levels they reached last year.
And some of the food categories that have recorded price declines, like beef, pork, poultry and dairy products, will begin to go back up as farmers cull herds and flocks, causing supplies of those products to decline.
“I think that the food inflation wake-up call won’t begin, in large measure, until late this year and in 2010,” Mr. Lapp said. He said, however, that there were already signs of rising prices for chicken and milk.
Faith Weiner, senior director of public affairs for Stop & Shop, the supermarket chain, said that shoppers had been snapping up large packages of meat or poultry when they were on sale.
“We think folks are stocking up,” Ms. Weiner said. “You might have a special on chicken breasts, a Big Buy packet at a reduced price. People are buying more than they normally would and freezing them because it’s a good value.”