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Updated on Friday, May 25, 2018
The new year can bring a tightening of budgets after the holidays, so the last thing many consumers want to hear is that food staples may cost more.
But retail food prices are forecasted in 2018 to rise between 1 percent to 2 percent, according to the U.S. Department of Agriculture.
Be prepared to see a possible difference on your grocery receipts and restaurant bills for these items:
- Eggs: Expected to increase 4 percent to 5 percent in 2018, following a drop in 2017 and 2016.
- Cereal and bakery products: Expected to increase 3 percent to 4 percent.
- Fresh fruit: Expected to increase 3 percent to 4 percent.
- Dairy products: Expected to increase 1.5 percent to 2.5 percent.
- Beef and veal: Expected to increase 1.5 to 2.5 percent in 2018, following a drop in 2017.
- Pork: Expected to increase 0.75 percent to 1.75 percent.
- Poultry: Expected to increase 0.25 percent to 1.25 percent, potentially impacting popular bar fare like chicken wings.
The price increases can be particularly alarming considering an average family spends approximately 6.6 percent of their household income on food and 43 percent of those expenditures on food away from the home, according to the U.S. Department of Agriculture. Rising food prices can affect families from all demographics but especially those in low-income situations.
Why food prices rise
There are many reasons behind price changes that may not seem obvious.
“The biggest drivers of rapid increases in prices tends to be weather-related events,” says Greg Colson, associate professor of agriculture and applied economics at the University of Georgia. “So it’s droughts, it’s floods, particularly droughts recently, that tend to drive very rapid increases.”
Another important thing to note is that food prices on average, including the price of eggs and poultry, actually dropped back in 2016, by an average of 1.3 percent. Also in 2016, retail egg prices declined 21.1 percent as egg-laying flocks recovered from the Highly Pathogenic Avian Influenza (HPAI) outbreak.
The number of animals in both dairy and poultry sectors also increased, leading to decreasing prices in 2016. These trends continued into 2017, which makes the rising food prices of 2018 seem surprising. But it may just be the market leveling out.
“There’s a seasonality, a cycle to all this, it’s tough (to forecast) because in general forecasting we’re looking at averages, or we’ve got trends or cycles, it’s easy, but forecasting shocks is very hard,” says Colson. “Nor can you predict, is it going to be a minor or a major drought next year?”
When experts forecast prices, they look at averages and use trends or cycles, but forecasting shocks is tough to do, Colson said. Experts can’t predict if there will be a drought next year, and if there is a drought, they also can’t predict how severe it would be.
Food-at-home prices are typically more volatile than food-away-from-home prices, according to the USDA, because the cost of dining out reflects more than the price of food. In fact, food-away-from-home prices rose an average of 2.6 percent in 2016, while food-at-home prices fell 1.3 percent — the first time such prices have declined since 1967. While eating at home has long been considered a more affordable choice, that was especially true in 2016.
Costs associated with food service, wages and benefits have been increasing and are potentially partially responsible for the percentage differences in rising costs. For example, when Dunkin’ Donuts’ store prices rose in 2016, Dunkin’ CEO Nigel Travis told investors this was due more to changes in minimum wage requirements than commodity pricing.
How outside factors affect food prices
Being aware of what and how external factors affect food prices can help you make sense of how and when you’ll see these changes.
For example, fuel prices and commodity costs can affect what you see on the price tag. Lower fuel prices don’t just affect your gas tank, they also make food prices lower, as transportation costs for commodity goods as well as for distribution make it cheaper for producers. And in 2017, the USDA said there were more egg-laying birds, which helped drive down the cost of eggs.
“There’s a lot of moving parts,” Colson says. “And so even if there’s no magical events in the U.S. if there’s positive/negative shocks elsewhere around the world, it can leave a big impact on the market.”
In the third quarter of 2017, spending at restaurants and other eateries increased 2 percent from the same time last year, according to NDP Group, a market research company. NDP Group attributed most of that increase to rising menu prices.
Although food prices are expected to rise in 2018 because of numerous variables, there’s no need to panic when planning out the monthly grocery budget. Due to the deflation in 2016 and the first half of 2017, 2018 prices are expected to stay below 2015 prices, according to the USDA.