Consumers are now expected to see grocery store prices steady to up 1% in 2016 compared to an outlook in July for an increase of 0.25% to 1.25%, as USDA’s Economic Research Service (ERS) made further downward revisions to forecasts for several products including meat & poultry and fruits and vegetables, according to USDA’s monthly food price outlook.
Overall, USDA forecasts food prices to rise 1% to 2% in 2016, with food away from home prices seen up 2.5% to 3.5%. For 2017, ERS forecasts the overall food price increase at 1.5% to 2.5%, putting in still below the historical 20-year average of 2.6%. Food away from home prices are seen rising 2% to 3%, slightly below the level expected for 2015 and the 20-year average of 2.7%.
As for the shifts in the outlook for 2016, ERS noted that beef and veal prices decreased 1.4% from June to July and are 7.7% lower than this time last year. Declining U.S. beef exports have increased domestic supplies, putting downward pressure on beef prices at the store. “Additionally, favorable pasture conditions in some areas in 2015 and lower feed prices have allowed cattle producers to feed cattle longer and to hold cattle for herd expansion,” USDA noted. “Aided by a strong (though somewhat weaker) dollar, lower prices have led U.S. beef to become more attractive abroad.”
ERS predicts beef and veal prices will decrease 5% to 4% in 2016 and increase 2% to 3% in 2017.
In the first forecast for 2017, ERS expects supermarket prices to rise between 1% and 2%. Despite the expectation for declining prices in 2016, beef and veal, poultry, and dairy prices are expected to rise in 2017.
“These forecasts are based on an assumption of normal weather conditions throughout the remainder of the year; however, severe weather or other unforeseen events could potentially drive up food prices beyond the current forecasts,” ERS said. “In particular, the drought in California could have large and lasting effects on fruit, vegetable, dairy, and egg prices. Also, a stronger U.S. dollar could continue to make the sale of domestic food products overseas more difficult. This would increase the supply of foods on the domestic market, placing downward pressure on retail food prices.”