Dive Brief:
- The Consumer Price Index for food-at-home decreased 1.9% during the 12-month period ending January 2017, according to a Bureau of Labor Statistics news release. Grocery CPI was flat compared to the previous month. The CPI is a measurement for grocery-level inflation.
- A large part of the decline comes from a 4.9% fall in the fruits and vegetables index.
- Dairy and related products increased 0.8%, achieving its largest advance since May 2014. The index for meats, poultry, fish and eggs increased 0.7% after declining for 16 consecutive months.
Dive Insight:
Barclays analyst Karen Short told Supermarket News that the lingering deflation is creating one of the most difficult operating environments in food retail that the company can remember.
Still, deflation is not always a bad thing. When meat saw a decrease of nearly 5% last year, the decline made the category more affordable for some customers, resulting in higher volumes and gross profits for retailers.
Analysts say that deflation often brings in more customers, resulting in more business. And once the customers are in the store, they become more loyal, even as prices rise. That’s why retailers continue to use price cuts and promotions to stimulate sales, which maintain the current deflation at the grocery.
Things could change quickly once the Trump administration starts tackling food industry challenges and changing trade agreements and tariffs. The price of imports may rise, causing prices quickly go the other way as retailers could take advantage of increased demand and decreased supply.