USDA RETAIL FOOD-INFLATION FORECASTS FOR 2011

In 2011, the Consumer Price Index (CPI) for all food is projected to increase 3 to 4%. Food-at-home (grocery store) prices are forecast to rise 3.5 to 4.5%, while food-away-from-home (restaurant) prices are forecast to increase 3 to 4%. Although food price inflation was relatively weak for most of 2009 and 2010, cost pressures on wholesale and retail food prices due to higher food commodity and energy prices, along with strengthening global food demand, have pushed inflation projections upward for 2011.

The all-food CPI increased 0.8% between 2009 and 2010, the lowest food inflation rate since 1962. Food-at-home prices increased by 0.3% - the lowest annual increase since 1967 - with cereal and bakery product prices declining 0.8% and processed fruit and vegetable prices dropping 1.3%. Food- away-from-home prices rose 1.3% in 2010, the lowest annual increase for restaurant prices since 1955.
For 2012, food price inflation is expected to abate from 2011 levels but is projected to be slightly above the historical average for the past two decades. The all-food CPI is projected to increase 2.5 to 3.5% over 2011 levels, with food-at- home prices increasing 3 to 4% and food-away-from-home prices increasing 2 to 3%. While many inflationary pressures that drove prices up in 2011 are not expected to intensify and may even decrease in 2012, retailers have been slow to pass on cost increases to date. Price levels in 2012 will hinge significantly on several macroeconomic factors such as weather conditions, fuel prices, and the value of the U.S. dollar (an indicator of global demand).

The CPI for all food increased 0.5% from July to August 2011, 0.4% from June to July 2011, and is now 4.6% above the August 2010 level. The food-at-home CPI increased 0.6% in August 2011 and is up 6% from last August, while the food-away-from-home index was up 0.4% in August 2011 and is 2.7% above last August. Food commodity and energy price increases over the past year, combined with a weak U.S. dollar, have caused most of the grocery store price increases observed in 2011. The all-items CPI was up 0.3% in August and is 3.8% above the August 2010 level.