- Food helped drive the largest increase in consumer prices since 1982, with inflation rising 7.5% over the past 12 months, according to the U.S. Bureau of Labor Statistics' Consumer Price Index for January. The price of food at home increased 7.4% over the last 12 months and rose 1% on a monthly basis in January. This compares to a 0.5% increase in December.
- In January, the price indexes for five of the six major food-at-home categories rose, with cereals and bakery products having the steepest increase at 1.8%, according to BLS. Other food at home prices increased 1.6%, with dairy up 1.1%, fruits and vegetables increasing 0.9%, and meat, poultry, fish and egg prices up 0.3%. The only group that did not see a monthly price increase was nonalcoholic beverages.
- As food manufacturers enter their third year of pandemic-driven supply chain disruption, they are passing along higher labor, transportation and ingredient costs to consumers, with no sign that demand is flagging.
Higher flour prices helped drive the overall increase in cereal and bakery products in the first month of 2022, according to BLS data. Prices for flour and prepared mixes rose 2.9% on a monthly basis, and were up 10.3% over the past 12 months. Prices of cakes, cupcakes and cookies rose 2.4% on average in January, and were up more than 6% year over year. Bread prices rose 1.1% on a monthly basis, and were up 5.9% over 12 months.
A significant cause for higher flour prices is "atrocious" weather in wheat-growing areas in recent months, Carlos Mera, head of agri commodities market research at Rabobank told Fortune this past November. Wheat hit its highest price in nearly a decade that month, surpassing $8 a bushel, according to MarketWatch.
Over the past 12 months, breakfast cereal has seen a 5.2% increase in prices, according to BLS data. On a monthly basis, prices actually fell 1.4% in January after rising the same amount in December.
During Kellogg's quarterly earnings call this past week, CFO Amit Banati said the company is seeing cost increases for common ingredients including wheat, corn and oil. The price of corn increased 45% in 2021 year-on-year, S&P Global reported. Global vegetable oil prices have also increased significantly, rising to an 11-year high in January, according to the FAO Food Price Index.
Kellogg CEO Steve Cahillane said that the maker of Kellogg's Frosted Flakes and Froot Loops may raise its prices again as it is seeing double-digit cost inflation on its ingredients and packaging materials, along with higher freight costs. Labor has also been a continual issue, compounded by the 11-week strike at the company's cereal plants last fall, and a fire at its Lancaster, Pennsylvania, ready-to-eat cereal facility in December, Cahillane said.
“Bottlenecks and shortages on everything from labor to materials to freight impeded supply across the global economy and created incremental costs and inefficiencies that were difficult to plan for,” he said.
General Mills, maker of cereal brands such as Cheerios and Chex, as well as Betty Crocker and Bisquick baking mixes, is looking to diversify the sources for ingredients due to supply bottlenecks, executives said during its most recent earnings call in December.
Over the last year, the largest price increase in the food at home index came from meat, poultry, fish and eggs, up 12.2%. Beef and veal prices led with a 16% year-over-year increase. On Tyson's most recent earnings call, CEO Donnie King shared that the meat giant was passing along higher labor, transportation, feed and other costs to consumers, a strategy that resulted in double-digit profit and sales increases.
Indeed, consumer demand will likely not wane even as price increases persist further into 2022, economist Rob Fox with CoBank said in a note.
“We believe that consumer food spending habits, which have become firmly entrenched after two years of the pandemic, will persist for a good while even if COVID fades into the background by mid-year,” Fox said. “The combination of tailwinds from the pricing actions now taking full effect with the continuing strong consumer demand means retail food manufacturers will continue to enjoy strong profits in 2022.”