Why Food Prices Are Still High While Inflation Is Falling
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What is the main topic discussed in this episode?
Here's your Money Briefing for Friday, February 23rd. I'm J.R. Whelan for The Wall Street Journal. Inflation may be declining, but it doesn't look that way at the grocery store. It's been 30 years since food prices took this big of a bite out of your finances.
Consumers can have sticker shock when they go to the grocery store and see higher prices for what they typically buy because they shop often and they can't put these purchases off.
Why are Americans spending the largest share of income on food since 1991?
It's not like a car. It's not like a cell phone. It's not like a TV.
We'll talk to Wall Street Journal reporter Jesse Newman about why food prices remain so high. After the break.
Americans continue to spend more than 10% of their personal income on food, even as inflation continues to fall. Wall Street Journal reporter Jesse Newman joins me to explain why. Jesse, when was the last time Americans were spending this much of their personal income on food?
You have to go back to 1991. This would be when George H.W. Bush was in the White House. We were still talking about the Soviet Union.
How long after general inflation falls do food prices usually follow?
This was 30 years ago.
Historically, how long after inflation begins to come down do we typically see food prices follow suit?
So it's actually pretty rare for food prices to come down once they've gone up. It's just whether you're talking about restaurants or grocery stores, the old adage, what comes up must come down. That just doesn't tend to be the case for food prices. Now, you do have people point out that it's also rare to see grocery prices have gone up about 40% in the last four years. So you do have people who point out this sort of inflation, a pandemic, is also incredibly rare. And in particular, in grocery... food analysts think that we could see prices dip into negative territory for a while this year. But overall, combined, restaurants and grocery, we're not really expecting to see food prices start to decline.
We sometimes hear that food prices tend to be sticky. What does that mean?
Once food prices have gone up, they tend to stay there. And I spoke to the CEO of Calanova, Steve Kahling, and he talks about how consumers, they can have sticker shock when they go to the grocery store and see higher prices for what they typically buy but because they shop often and they can't put these purchases off it's not like a car it's not like a cell phone it's not like a tv these aren't purchases that you can really postpone we're talking about food and so when you go to the grocery store for the third time and you see this price and the fourth time and you see the price in the fifth time consumers sort of begrudgingly get used to these higher prices and you know just like for a gallon of gas
Once you see the higher price, that's the new price.
What does it mean that food prices are 'sticky' and why do they stay high?
And he believes that people will adjust.
We also saw mass resignations impact labor costs and prices during the pandemic. Is that still going on?
Labor is a huge part of what food manufacturers and restaurant chains talk about. You know, they say... Wages have gone up. Skilled workers are a lot more expensive to hire today than they used to be. Some folks pointed us to skilled workers like mechanics. They said a lot of these longtime staff at food plants retired during the pandemic. And now to hire a replacement, to hire a mechanic is significantly more expensive. And then on the restaurant side, they're also paying a lot more for labor than they used to.
A moment ago, you said that prices might actually come down a bit. What would bring those prices down?
Companies are starting to offer more promotions.
How did pandemic-era labor shifts and higher wages keep food prices elevated?
They're starting to offer more deals, offer more discounts. That's a way in which, without reducing what food companies call the list price, that's a way in which they can offer consumers a little bit of relief. There's a deal. There's a two-for-one or, you know, buy three, get one free. So we're starting to see more deals. And then there are also instances in where some food manufacturers are taking list price declines. For example, this would be sort of single commodity goods where companies have seen a reduction in their own costs and are passing through those savings to consumers.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:02–0:32
2
Why are Americans spending the largest share of income on food since 1991?
0:32–1:23
3
How long after general inflation falls do food prices usually follow?
1:23–3:10
4
What does it mean that food prices are 'sticky' and why do they stay high?
3:10–4:03
5
How did pandemic-era labor shifts and higher wages keep food prices elevated?
4:03–4:48
6
What factors could actually lead grocery or restaurant prices to come down?
4:48–5:49
7
How are consumers changing shopping habits to cope with higher food costs?
5:49–6:19
Speakers
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