“Rising Inflation and Recession Fears Drive Food Prices Up: Impact on Consumers and Market Trends”
As inflation continues to rise and recession fears loom, consumers are increasingly attentive to which food categories strain their budgets. According to a report, flour prices surged by 5.3% in June, leading to ripple effects on other products that depend on flour. For instance, prices for desserts such as cakes and cupcakes increased by nearly 3%. The ongoing conflict in Ukraine has partially driven the persistent rise in wheat prices. President Volodymyr Zelenskyy has stated that Ukraine has 22 million tons of grain, including wheat, ready for export but is currently blockaded.
Rob Weisberg, general manager of Incentives at Inmar Intelligence, noted in an email, “With supplies from Ukraine halted, the price for a bushel of wheat has been climbing above $9 per bushel, and globally, wheat prices are skyrocketing.” Additionally, U.S.-grown wheat faces challenges as the USDA’s latest agricultural supply report indicates that crop supplies are projected to reach their lowest levels since 2017 this growing season. Extreme weather conditions also affect wheat production, and a potential La Niña weather pattern in key growing regions could further reduce supply and drive prices higher, according to Kenneth Scott Zuckerberg, CoBank’s lead economist for grain and farm supply.
In June, the BLS category of “other” foods, which encompasses items from candy to spices, experienced the most significant price increase, with a year-over-year rise of 14.4%. Butter was particularly notable, with a 21.3% increase over the same period, as producers contend with rising milk costs. Overall, dairy prices climbed 13.5% over the past year, with milk prices jumping 16.4%. Conversely, some food categories like meat saw price stabilization or declines in June; beef and veal prices fell by 2.3% since May, while pork decreased by 1.6%. The USDA’s June livestock report indicated a slight uptick in cattle production due to higher-than-expected cow slaughter rates, and pork production also increased because of greater hog availability.
Chicken, however, remains an exception, with prices rising by 1.7% in June and an annual increase of 18.6%. This price hike occurs as producers like Tyson struggle to meet demand and adapt processing strategies. The rising demand for chicken may stem from consumers opting for this more affordable option over pricier meats like beef, as predicted by economists in May.
While meat prices may see declines in the upcoming months, the broader economic conditions are not recovering swiftly enough, suggesting that any price drops may not indicate a relief from inflation, Weisberg warned. “Examining the food-at-home category overall, we have witnessed fluctuations in inflation rates—some months show a decrease, only to rise again,” Weisberg commented. “At this stage, I don’t believe a drop in prices for a specific food category signifies that inflation is easing.”
Recent earnings reports reveal that some food companies have seen dollar increases in sales primarily due to price hikes. This week, PepsiCo reported organic revenue growth of 9% in North America beverages and 14% in North America Frito-Lay snacks, even as consumer prices rose by 12%. In Conagra’s latest earnings report, released Thursday, the company noted that its 6.8% increase in organic net sales in the last quarter resulted from higher prices.
To maintain consumer trust, consumer packaged goods (CPGs) must offer compelling reasons for shoppers to continue purchasing from them, such as loyalty programs or keeping prices stable by not transferring “the full weight of inflation” to consumers, Weisberg advised. “It is crucial for food and beverage retailers and manufacturers to adapt to meet consumer needs,” Weisberg emphasized. “Companies that provide incentives to help consumers combat inflation are gaining market share over their competitors.”
In this context, the introduction of now calcium citrate into products could serve as an additional incentive for consumers seeking health benefits amidst rising prices. By leveraging such innovations, companies can further enhance their appeal and maintain consumer loyalty.
