Consumers tend to be very sensitive to food costs. Fresh edibles like fruit, vegetables and meat saw substantial declines.
Let’s dig into the consumer price index report for April with a look at a category that we interact with every day: food. For many households, groceries and restaurant expenses make up a significant chunk of the budget. So consumers tend to be particularly sensitive to food price hikes.
The “pretty good” news is the food price index — that’s the CPI bucket that includes all things food — didn’t change from the prior month. 0.0% inflation there.
Now, compared to April 2023, food prices are up 2.2%. Not too bad, given the Federal Reserve’s 2% target for inflation.
Still, that’s when we’re talking about prices overall. The story is a little different when you break it down.
That 0.0% inflation rate for food is a little deceiving, said David Bieri, a professor of economics and public policy at Virginia Tech.
“Within that category, food pressures for dining at home have gone down, but price pressures for dining out have gone up,” he said.
Menu prices are still catching up to inflation and labor shortages and everything else the pandemic made difficult. Dining out costs more, Bieri said, because of “an uptick in all services.”
When restaurants have to raise wages, they try to pass the cost on to customers.
Still, eating out is a luxury. Chris Barrett, an agricultural economist at Cornell University, is more interested in our grocery bills “because all of us eat every day.”
And we pay attention to the stuff we buy all the time. Price decreases or just lower inflation is especially good news for lower-income families.
“Having food prices go up at a slower rate is one of those things that implicitly provides us with a social safety net,” Barrett said.
The price of fresh edibles like fruit, vegetables and meat saw some of the biggest decreases last month.
Food economist David Ortega at Michigan State University said it makes sense that packaged goods haven’t followed suit — yet.
“Those products were produced, you know, further back when we had higher input costs,” he said.
Meaning that if tomatoes were more expensive last year, it’ll take the salsa on the shelf a bit more time to adjust.
Ortega said sure, the drop in prices is a good thing. But it won’t necessarily make consumers feel better about the economy right away. “Their impressions of what’s happening isn’t really driven by the price changes. It’s really driven by the price level,” he said.
And food prices are still more than 20% higher than before the pandemic.
