If you feel like your grocery budget just doesn't buy you as much as it once did, you're not alone. According to U. S. Bureau of Labor Statistics, food prices rose 11. 4 percent last year alone - the highest annual increase in 23 years. The ongoing pinch at the grocery store has been in the news of a lot of media outlets, such as The Wall Street Journal, The New York Times, Times Magazine, Forbes, and so many others. Our guest today, food economics and policy professor David Ortega from Michigan State, is going to walk us through the food price inflation phenomenon. Interview Summary We've been hearing a lot about food price inflation. Can you tell us how food prices have changed over the last four to five years, and how that compares to the recent past? Definitely. So, I think it's always really important to define what food inflation is so that we're all on the same page. We hear this word a lot and we've been hearing it for a number of years now. Inflation is the rate of increase in prices over a period of time - so how fast prices are changing or increasing in a given period. The time frame here is very, very important. Now, compared to last year, food prices are only up 2.1%. And this is for all food, which includes food at home and food away from home. Now groceries, food at home, are up 0.9% compared to last year. And menu prices at restaurants, or food away from home, are only 4.0% higher. Now if you're listening to this, you're probably thinking, ‘well, how can this be given how expensive things are at the grocery store?’ And that's because you are likely thinking about how food prices have changed since the start of the pandemic, right? So, over the past five years, food prices have increased around 26%. And so that's the cumulative effect of inflation that we're all very familiar with at the grocery store. Wow. You talked about the recent past, and in particular, about the time since COVID. How has this looked historically if you take a longer time frame? Yes, so if we look at a few years before COVID, food prices generally increase around 2% or so, year over year. Now in the summer of 2022, we experienced double digit increases in food prices. More than 11%, year over year. And that was the highest rate of increase in around 40 years, since the late 1970s and early '80s. So now that's a significant spike and departure from what we would consider to be normal. But the rate of increase has come down to almost pre pandemic levels, which is really great news. But remember the rate of inflation is the rate of increase, so because that rate has come down, it doesn't mean that prices are decreasing necessarily. They're just not growing as fast as they were before. Correct. I have some ideas, but I really want to hear you talk about it. What has led to this significant increase in the last four and a half years or so? It's really been a convergence of factors. It's not just one particular thing, but really all these factors coming together and sort of compounding on each other. We saw increases in labor costs, and then as we go through the timeline, we had Russia's invasion of Ukraine in February of 2022. And that really sent commodity prices surging for things like wheat, other grains, as well as vegetable oils. And it wasn't just the invasion alone, but we had countries responding with export restrictions on things like palm oil that really just exacerbated the situation. We also have the impacts of climate change. The summer of 2022, and for a few years leading up to then, there was this mega drought in the West and the plain states that affected anything from lettuce prices to the price of meat. Something that we're experiencing to this day. We also have the bird flu outbreak, now the largest outbreak in U. S. history. Egg prices have been through a bit of a roller coaster ride, and we've been hearing a lot about increases in egg prices. That's primarily due to the high path avian influenza outbreak, or the bird flu outbreak. Now, those are all what I would consider, for the most part, to be supply side factors. But we also have demand factors at play. And that is, that when we look at consumer spending on food, especially over the past two to three years, it's been much higher compared to before the pandemic. Even when you adjust for inflation. Now, this is likely attributed to households. Some of them accumulated savings. We had the fiscal stimulus payments from the government that injected cash into the economy. For a period of time, some households, we could splurge at the grocery store. We've seen, and the data from USDA shows, that consumer spending on food both at home and away from home is much higher in recent years than prior to COVID. So again, it's a combination of both supply side and demand side factors that have contributed to the significant rise in food prices. This is a really important point that it's not a single factor, but it's this mix of things, which also makes it ...
