Grocery prices jumped 4.5% year-over-year in September, the highest jump since August 2020, according to the latest government data.
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Food prices are soaring and analysts do not foresee a peak until at least well into 2023.
Climate change, skyrocketing transportation and energy costs, and widespread labor shortages are all contributing to the run-up in grocery bills. Food inflation also threatens the post-pandemic recovery by accelerating inflation and potentially upending how food is moved, bought and sold in America.
The food at home segment of the consumer price index, which represents what consumers pay for groceries, jumped 4.5% year-over-year in September, the highest increase since August 2020. The broader consumer price index, the market's preferred inflation measure, was up 5.4% for the year in September. U.S. shoppers are paying about 25% more than they were a year ago for sirloin steak, 29% more for bacon and 36% more for eggs, according to the latest U.S. Bureau of Labor Statistics data.
"It's going to get worse for the next 12 to 18 months," said Phil Lempert, a grocery store analyst and founder of SuperMarketGuru.com, in an interview. "It's going to take a lot of time and money to fix these issues."
Grocery prices are on track to rise between 2.5% and 3.5% this year, largely driven so far by surging beef and veal prices, according to the U.S. Department of Agriculture's Economic Research Service. The agency forecasts prices will rise in 2022 by up to 2.5%. That might be a conservative estimate, however, and any price hikes are likely here to stay, economists said.
"It's something that goes up and then plateaus as we reach a new equilibrium," said Andrew Novakovic, a Cornell University professor emeritus of agricultural economics. "It's not a cycle that's going to come back down again."
Agriculture prices rise in dry, burnt West
Weather, always a major driver of agriculture prices, has wreaked havoc in commodities markets this year. A sustained drought in Brazil has caused coffee futures to nearly double since the start of the year. Wildfires in California devastated soy and corn crops. Hurricane Ida shuttered fertilizer plants along the Gulf Coast, causing feedstock prices to spike.
A major drought also severely hindered crops in California and other western states this summer. California grows about one-third of the vegetables in the U.S. and two-thirds of the country's fruits and nuts, according to the Department of Agriculture.
"On the supply side, just about everything that could go wrong has gone wrong," said Sung Won Sohn, a professor of finance and economics at Loyola Marymount University.
High energy prices have also been a shock to the agriculture sector, Sohn said, with diesel prices driving up the costs of using tractors and other farm equipment and severely boosting the costs of shipping commodities by truck. Higher energy prices have also increased refrigeration costs, hampering the movement of perishable items.
Transport prices have multiplied, with historic congestion at ports throughout the world. The cost to ship products in a 40-foot container has, on average, jumped from $1,633 in February 2020 to $9,670 at the end of October 2021, according to Drewry, a maritime research consultancy.
Supply chain bottlenecks have increased the costs of imported produce and, as rising commodity prices have increased demand for farm equipment, manufacturers have struggled to acquire parts from overseas.
"You might have a tractor, but no tires," said Sohn.
Labor shortage
Farmers are also scrambling to find drivers to move their products. The U.S. trucking industry expects an ongoing driver shortage to reach 80,000 drivers this year, an all-time high, and that will likely climb to over 100,000 by 2024, according to the American Trucking Associations. The industry employed 1.5 million people in October, according to the Bureau of Labor Statistics, or BLS.
The labor shortage has plagued all corners of the industry. The number of U.S. employees at food and beverage stores, for example, fell below 3.09 million in September, its lowest point since April 2020 and down about 3.4% since the start of the year, according to the BLS. The number of employees at these stores rose to just over 3.1 million in October.
Schnuck Markets, a St. Louis-based grocery store, began closing most of its stores in October an hour early due, in part, to labor shortages.
Rising wages are likely the biggest factor that drive food price inflation in 2022, according to Arun Sundaram, a CFRA Research senior analyst. Wages rose by 4.2% in September, up from 3% in May, according to data from the Federal Reserve Bank of Atlanta. The figures represent the three-month moving averages of median hourly wage growth in a 12-month period.
"If wage inflation continues at the rate it is right now, that's the kind of thing [that] could continue to increase prices going forward," Sundaram said in an interview.
Labor shortages at grocery stores are unlikely to improve as many of the workers who left during the pandemic choose not to return, said Lempert with SuperMarketGuru.com.
"Are workers going to go back to a low-paying job where customers are yelling at them about toilet paper?" Lempert asked.
Systemic impacts
These factors will likely pressure food prices higher. More erratic weather patterns make it harder for farmers to manage production, and a sea change in how people approach where they work appears to be underway, Cornell's Novakovic said.
"To the extent that these are systemic impacts — climate change and the labor supply — that could have a longer-term impact on food prices," Novakovic said.
High food prices may also boost the perception that inflation is worse than official measures, Sohn with Loyola Marymount said.
Federal Reserve Chairman Jerome Powell said Nov. 3 that he expects inflation to run much closer to the central bank's goal of 2% once ongoing supply constraints ease. Still, consumer inflation expectations are running well above the Fed's goals. Median inflation expectations for the near term, or about one year ahead, climbed to 5.3% in September, according to the latest results from the Federal Reserve Bank of New York's Survey of Consumer Expectations. It was an all-time high for the survey.
More expensive groceries mean consumers, especially ones with lower incomes, are having to spend more of their dollars at the supermarket and less for discretionary purchases. Food inflation is a likely reason consumer confidence is depressed and will play a factor in consumer spending, said Rubeela Farooqi, chief U.S. economist for the research group High Frequency Economics, in an email.
"Looking at supply-side issues, which are a main driver of price measures right now, it appears constraints are worsening rather than easing, which will be a factor in households decisions about spending going forward," Farooqi said.