Beef prices soar, food inflation is highest in more than eight years
Food prices rose sharply for the second month in a row, with beef recording its largest one-month increase ever, as the U.S. food inflation rate hit 4% in May, said the Bureau of Labor Statistics on Wednesday. It is the highest rate since January 2012. While food prices surged, the overall U.S. inflation rate for the past 12 months was a tiny 0.1%.
Analysts at Trading Economics, a financial information site, predicted food inflation would quickly return to its traditional modest rate of around 2% annually. In May, the USDA forecast a slightly higher-than-usual increase of 2.5% in food prices this year.
The BLS said food prices climbed by 0.7% in May, following a 1.5% spike in April. “However, unlike the broad increase in April, the May increase was driven mostly by a 3.7% rise in the index for meats, poultry, dairy, and eggs. The beef index increased 10.8% in May, its largest-ever monthly increase,” said the agency’s monthly Consumer Price Index Report.
Meat production slowed during April and into May due to coronavirus outbreaks at meatpacking plants. Some of the largest cattle and hog slaughter plants closed temporarily, reducing the flow of meat to grocery stores. Some chains limited customer purchases.
“The problems in meatpacking plants do not seem over, although most of the plants are back online,” said economist Joe Glauber of the IFPRI think tank. “If this means lower meat production over the next few months, then meat prices will continue to remain higher than year-ago levels but likely down a bit from the current spikes.”
Grocery prices rose by 4.8% in the past 12 months, faster than the 4% overall increase in the price of food, which combines grocery prices and spending on food served at restaurants, carry-out shops, and institutional settings, said the BLS. Food-away-from-home spending rose by 2.9% in the past year.
The BLS report of high food inflation, led by high meat prices, came a day after the USDA said cattle, hog, and chicken processing plants were operating at 95% or more of their production rates in 2019. Agriculture Secretary Sonny Perdue said the industry was “providing a great meat selection once again to the millions of Americans who depend on them for food.”
Food accounts for 14% of consumer spending, according to the BLS. Americans are expected to spend a larger share than usual of their food dollar on groceries this year, a result of precautions against the coronavirus pandemic that included a near shutdown of the food service industry in late winter.
“We estimate that households will spend 13% more on groceries than usual, as consumers substitute the food they ate away from home for grocery and pantry items,” said analyst Chris Horymski at the Magnify Money website. The average household will spend $598 a month on food, down from the previous $710 a month. Groceries cost less than restaurant meals, he said, so food-at-home expenditures will rise by $50 a month and food-away-from-home purchases will fall by $162. “Taken in total, that means the average family food bill will fall by $112,” said Horymski.