One of America’s leading consumer trend-watchers and analysts, Phil Lempert, warns that price spikes for food are here to stay and shoppers shouldn’t expect relief any time soon.
“We’re going to continue to see price increases, probably for the next two years or so,” the founder of SupermarketGuru.com told Fortune on Thursday (August 12).
Prices that Americans pay for everyday goods and services rose last month, the Labor Department said on Wednesday (August 11). The U.S. consumer price index (CPI) increased 0.5% in July after climbing 0.9%. In the 12 months through July, the CPI advanced 5.4%, remaining at a 13-year high. Main upward pressure came from food (3.4% vs 2.4%), led by sharp increases in food at home (2.6% vs 0.9%) and food away from home (4.6% vs 4.2%).
However, the surge in consumer prices has been described as “transitory” by the Federal Reserve. It may not be as transitory as some expect because it is proving sticky and “for inflation to prove transitory, we would need to witness a broadly declining trend from now” AmBank Group argues.
Why are grocery prices going up?
Food prices have climbed for a number of reasons, including higher commodity costs, labor shortages, consumer demand, global supply chain pressures and severe droughts in key countries according to experts.
Lempert says that China, for example, has been buying up a number of raw commodities, including soy, which is often used in animal feed. In fact, almost 80% of the world’s soybean crop is fed to livestock, especially for beef, chicken, egg and dairy production, according to the WWF. That drives an increase in price and as a consequence, pork and chicken prices are on the rise because it’s now more expensive to raise these animals.
Experts also blame climate change. Coffee trees in Brazil, the world’s top coffee producer, were weakened by a historic drought, which has already reduced prospects for several crops. Coffee trees were then pummeled by two frosts in less than a month. Wildfires have damaged or destroyed grapevines in California.
“Long term, we will see a lot more indoor farming, but that takes hundreds of millions of dollars and time to build,” Lempert told the magazine.
Energy, transportation and labor shortage are also major issues. Last month retail gasoline prices in the US were up 2.4% compared with June and some 41.8% compared with July 2020, according to the Labor Department. The US labor shortage is also hampering transportation.
About 3 years ago Lempert wrote in his Forbes column how the U.S. had a shortage of over 50,000 truck drivers and that would create a huge problem for its food industry.
Another contributor to escalating food costs are labor costs.
“It is a much bigger problem, and a much more complex problem, than the average consumer realizes or understands” Lempert told Fortune.
Consumers can expect that the price of anything that touches an animal to be on the rise, as well as anything that comes in aluminum, according to Lampert.
As in June (and May) prices for meat, poultry, fish and eggs saw increases for July. Actually they saw the biggest year-over-year jump of 5.9% last month.
So be prepared to continue to pay more for groceries.
Phil Lempert is a Television & Radio News Reporter / Newspaper Columnist / Author / Consumerologist / Food Marketing Expert. He graduated from Drexel University with degrees in Marketing and Retail Management and did his Post-Graduate studies at Pratt Institute. He founded SupermarketGuru.com, one of the leading food and health resources on the Internet, in 1994.