Grocery prices could start falling in 2024, or at least stop rising so rapidly, according to an early forecast from the U.S. Department of Agriculture.
That would provide major relief for inflation-weary consumers after the cost of groceries rose 11.4% last year, the biggest annual jump in nearly 50 years.
That’s just the most optimistic scenario. According to the USDA’s range of estimates released last month, the price of food at home could fall almost 7% or rise up to 9% in 2024.
The range acknowledges massive uncertainty about the global food supply, energy prices and consumer behavior over the next year.
“There are a lot of unknowns right now,” said Michael Boland, a University of Minnesota professor and agribusiness expert. “I think it’s still good news for consumers, and it’s going to impact the margins of consumer packaged goods companies.”
The USDA’s midrange estimate and perhaps most likely scenario for 2024: The cost of groceries will rise about 1%. That’s less than half the average rate of food inflation over the past 20 years and a far cry from the levels seen in recent years.
Still, slower inflation does not erase the above-average price increases of the past several years, Boland said. Prices for food at home have risen an additional 4.7% so far in 2023.
“The overall trend line is up,” Boland said. “That’s one thing not to miss.”
And that means the pinching of budgets, especially for those on fixed incomes, continues to linger.
“A hundred dollars of groceries does not fill the cart anymore,” said Millicent Rorvig while leaving Walgreens in downtown Minneapolis earlier this week. “And bus fare is higher than it used to be — it’s the little things.”
Rorvig, who is currently staying at a homeless shelter, said she feels for farmers who may be struggling. But if food prices fall, “that’s good for everybody,” she said.
Food prices rose due to a major shift in consumer spending, from restaurants to grocery stores, during pandemic lockdowns. As food manufacturers scrambled to meet demand, supply chains were stretched to the limit and the cost of labor, transportation, raw materials and packaging all skyrocketed.
Only recently have supply chains largely recovered and input costs stabilized — though wages and energy costs remain high. Food companies have signaled a slower or more targeted approach to future price increases as a result.
“We feel good about what we see right now with our pricing and the inflationary environment that we see,” General Mills CEO Jeff Harmening said in June.
A consumer’s sensitivity to prices to the point at which they stop buying — a concept known as elasticity — is another major factor in a company’s willingness to increase prices.
Frugal shoppers can fight inflation by refusing to buy products beyond a certain price point where there are alternatives, such as switching to store-brand cereal. General Mills, for instance, has sold fewer products overall in recent quarters even as price increases have driven higher revenue.
“The signal of frugality has done some of this work letting retailers and food manufactures know there are limits to how high prices can go,” said Justin Cook, U.S. consumer products research leader at Deloitte. “If you’re a consumer I see hopeful signs that prices will abate, but time will tell.”
Deloitte’s monthly State of the Consumer survey shows a majority of Americans still expect to see higher prices in the months ahead — but inflation expectations are at their lowest level in two years.
Cook says many Americans are still splurging and have been less frugal than shoppers surveyed in other countries as the job market remains resilient. Asked whether companies or consumers will lead the way on prices, he said “it takes a village.”
“If we see any more big production disruptions, food supply issues, global instability, that could play a role,” Cook said. “On the consumer behavior side, if they feel less secure in their financial situation, that could play a role in frugality and the prices they can accept.”
The USDA updates its food price forecasts every month, and the U’s Boland said a number of factors could make the next outlook more or less optimistic.
“Once you’ve increased the price of product, you don’t want to take it down,” Boland said. “But there is a lot of negotiating going on right now. It’s harder to pass along price increases than it was two years ago during the pandemic, when uncertainty was high and people had high expectations for inflation.”
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