How much longer will grocery retailers deal with CPI declines?

Dive Brief:

  • The Bureau of Labor Statistics reported that while protein's deflation rate declined in November, the Consumer Price Index for food at home still had its 12th consecutive year-over-year monthly decline, according to Supermarket News. As compared to November of 2015, grocery prices were down by 2.2%.
  • A 6% year-over-year decline in prices for meats, poultry fish and eggs was not as severe as October’s 6.4% decline, while dairy was unchanged from October at a 1.7% decline. However, deflation in fruits and vegetables was slightly worse at 1.5% vs. 0.8% in October, the Bureau said.
  • Shane Higgins, an analyst with Deutsche Bank, noted in the Supermarket News article that while grocery retailers appear to be grappling with the worst of the current cycle right now, Producer Price Index figures released earlier this week suggest conditions may improve by spring, and prices could start rising again by mid-2017.

Dive Insight:

While the prices of food are falling, everyone who deals with it is not seeing the same economic constraints. According to the Bureau of Labor Statistics, while grocery retailers continue to deal with falling prices, those in the restaurant industry are slowly increasing prices, with data showing restaurant prices have risen 2.3% since November of 2015.

However, when it comes to grocery, prices are expected to reverse tide by summer of 2017. That means grocery retailers will need to up their prices on select products and that could lead to a backlash by consumers.

Additionally, a stronger U.S. dollar is expected to make the sale of domestic food products overseas more challenging. This would increase the supply of foods on the domestic market, placing downward pressure on retail food prices.

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Filed Under: Grocery
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