Food Inflation is still Real in 2025!

Over the years, I’ve focused on food inflation. It definitely is a leading indicator of the US economy. There are several reasons why food inflation makes its appearance. In the industry. Food prices are one of the first categories that increase in lieu of upcoming economic downturns. Let’s examine the current situation. The common thought for today’s food inflation includes the war in Ukraine, shipping costs, and higher costs associated with the production of food items (increased wages).

That begs the question “How much have food prices risen in the past 12 months and how does this compare to general inflation?” According to Forbes Magazine, The Bureau of Labor Statistics reported food inflation has risen at a faster rate than the broader Consumer Price Index over the previous 12 months. General inflation - as measured by CPI-U, which covers all urban areas - rose 3.2% for the 12-month period ending in July, while the cost of food rose 4.9% during the same period.

So which food items have been most effected by inflation? Grain products top the list. Ukraine produces a lot of grain and Russia’s invasion hit producers and exporters of grains and oilseeds hard. The effects on cereals and other grain products rose as much as 10.7% in the past year. Also rising substantially were frozen foods such as fruits and vegetables (11.8%) and noncarbonated juices and drinks (16.3%) and margarine increased by 11.3%.

To ignore the effects Covid-19 and the rebound that followed in 2023 resulted in the most significant reason for rising prices. According to Forbes Magazine, “As we emerged from the pandemic, supply chains were severely disrupted and coupled with the glut of fiscal stimulus from governments around the world, demand remained strong. This supply/demand imbalance was the primary reason for the current round of inflation”. There were some bright spots in the cost of certain food prices which fell during the past 12 months. This includes bacon (-10.7%); pork chops (-2.4%); pork roast, steaks, and ribs (-6.8%); chicken (-2.5%); eggs (-13.7%); and fresh whole milk (-4.5%). Prices for oranges and tangerines also fell (-3.6%), as did peanut butter (-1.7%).

So how long can we expect these high costs in our supermarkets. We are reminded that this is a global event and the reasons cited started long before the pandemic such as the cost of shipping, labor, and tariffs. Some of the other generic reasons that have been mentioned are the federal government’s excessive spending, a.k.a. fiscal stimulus which continues to push prices higher. Inflation occurs when there is too much demand relative to supply.

Here's where I break from the uniform idea of supply and demand. We have plenty of supply. And we have an equal proportion of demand. In fact, the United States continues to produce to much food! That’s why the export industry exists. An industry I’ve been involved with for 20 years and the growth has been exponential! What’s really going on?

As food prices head higher, it’s a safe bet the Fed will continue to tighten rates until inflation falls to its 2.0% target. The conventional thought…if the federal government reduces spending, they might not need to go to such extremes in raising rates and reducing the money supply. Yeah…right! That isn’t happening. Remember when China and the US were in a bitter trade war? It’s still simmering.

And then in 2022 the container shortages caused clogged supply lines and backlogs in US ports. Remember that? The cost of food products as well as many other product categories started with the US/China tariff war in 2019. That war spilled over to the artificially created shortage of containers which was a silent outcrop. This triggered the supply chains to contract and so supply and demand was affected. In my next statement, I will examine the roll of China and the Federal Government in the acceleration of policies and politics that has contributed to inflation. And with that, I will see you at Gulfood in Dubai!