Within grocery, steaks have seen the highest price jump annually, costing 24.9% more in October than they did a year ago. Eggs were 11.6% more expensive in October than a year ago, chicken cost 8.8% more, cereal was 5% more expensive, and baby food prices grew 7.9% annually.
Grocery prices stagnate from 2015 through 2019, but have increased during the pandemic. In 2020, grocery prices increased 3.7% from the previous year.
Food manufacturers and grocers have faced higher costs for commodities, labor, transportation and other expenses during the pandemic. Those costs have escalated in recent months, leading manufacturers to pass off some of these costs to their retail customers, who in turn have passed on a portion to consumers.
The producer-price index, which measures the price manufacturers receive for their goods and services, jumped 0.6% last month from September and rose 8.6% annually.
Companies are also pulling back on discounts on many items at stores because demand is strong and they don’t want to run out of their limited supplies of goods.
“We continue to face accelerating levels of extraordinary inflation,” Tyson said in a letter to retail customers last month in which it announced it would be raising prices next year on brands such as Ball Park hot dogs and Jimmy Dean frozen breakfast. “The sustained duration and significant impact of the inflation necessitates additional pricing action.”
Market research firm IRI projects that inflation on food, beverages and household basics will climb to 8% during the first half of 2022 before settling at 4% during the latter half of the year. IRI tracks prices, point-of-sale and volume data, promotions and trends at big-box stores, wholesale clubs, supermarkets, pharmacies and other channels. The firm also consults with some of the largest retailers and brand manufacturers in the United States and conducts consumer surveys.
Squeeze on low-income customers
While higher prices for food are impacting families across the country, low-income shoppers get hit hardest when essentials become more expensive. These consumers have less disposable income and already spend a bigger share of their wallet on essentials than wealthier consumers.
“Families that have to spend a higher share of their incomes on necessities get squeezed more when the prices of necessities increase,” Diane Whitmore Schanzenbach, director of the Institute for Policy Research at Northwestern University, said in a recent email.
Despite the price hikes, a recent boost in federal benefits such as food stamps as it as the child tax credit, coupled with higher wages, may help low-income shoppers handle the increases.
Benefits starting in October jumped 27% above pre-pandemic levels, on average—the largest increase in the program’s history. The change stems from a revision of the Thrifty Food Plan, which determines the benefit amounts of SNAP recipients. The update comes as part of a US Department of Agriculture review of the food stamp program required under the 2018 Farm Bill.
The average monthly benefit will jump to $169 per person under the revision, according to the agency, up from $121 per person before the coronavirus pandemic.
What does it mean for shoppers and stores?
Consumers have shown a willingness to accept higher prices for food and household basics without much of a drop-off in spending.
That may not last much longer.
In 2007, 2008 and 2011, prices grew more than 5% on groceries, which resulted in volume declines (shoppers buying less of a product or switching to a cheaper version), according to IRI. The firm projects that this will happen in 2022, with volume dropping by up to 5% compared with this year.
IRI says customers are beginning to trade down in areas of the store where prices have spiked highest.
“Shoppers are paying more for some categories, like meat, and are beginning to trade down to cheaper alternatives,” said Krishnakumar Davey, president of IRI’s strategic analytics practice. Some shoppers are switching from premium cuts such as rib-eye, sirloin and beef loin to ground beef, ground turkey and ground lamb, according to IRI point-of-sale data and conversations with grocers and manufacturers.
Higher grocery bills may benefit discount stores at the expense of full-price supermarkets.
Higher prices are “very much noticed by consumers” and “increasingly something that will cause them to change patterns or look for ways to save money,” CEO Eric Lindberg said on an earnings call with analysts Tuesday. “We think that ultimately turns in our favour.”
CNN’s Tami Luhby contributed to this article.