In a report released this week, the USDA’s Economic Research Service projects the Consumer Price Index (CPI) for all food will increase 2 to 3 percent this year, as lower commodity and energy costs combine with weaker domestic and global economies to pull inflation down from 2008 levels. Pressure on retail food prices has subsided, resulting in low-to-moderate food price inflation in 2009.

The agency forecasts food-at-home prices will increase 1.5 to 2.5 percent, while food-away-from-home prices post higher gains of 3.5 to 4.5 percent in 2009.

Looking back, the all-food CPI increased 5.5 percent between 2007 and 2008, the highest annual increase since 1990. Food-at-home prices increased 6.4 percent during that period, led by a 13.8 percent increase in fats and oil prices and a 10.2 percent increase in cereal and bakery product prices. Those increases occurred, of course, during the time when skyrocketing energy prices boosted demand for ethanol and drove grain prices dramatically higher. Food-away-from-home prices rose 4.4 percent in 2008.

The CPI for all food was unchanged from July to August 2009, after dropping 0.2 percent from June to July. It now stands at 0.4 percent above the August 2008 level. The food-at-home index was also unchanged in August 2009 and is now 1.6 percent below last August, while the food-away-from-home index increased 0.1 percent and is now 3 percent above last August.

The all-items CPI increased 0.2 percent in August but is 1.5 percent below the August 2008 level, mostly due to the large decline in energy prices during the past year. The agency notes that energy prices have started to rise over the past few months, and projects that overall consumer inflation will soon return to positive annual levels and put an end to the recent deflationary period.

Key trends in protein foods include:

  • Dairy prices were down 0.4 percent in August and are 10.4 percent below the August 2008 level. Within the dairy category, milk prices decreased 0.7 percent, the eleventh price decline in the past 12 months, and are 17.7 percent below last August’s prices. Cheese prices were down 0.8 percent and are 11 percent below those of last August.
  • Beef prices increased 1.1 percent in August, just the second price increase in the past 10 months, but remain 4.7 percent below last August. 
  • Pork prices were down 1 percent in August, the fifth price decrease in the past 8 months, and are now 4.4 percent below last August’s level. 
  • Poultry prices increased 0.9 percent in August and are up 0.7 percent from last year at this time. As substantially lower feed and energy costs were incorporated into meat production costs over the past 6 months, some retail meat prices are now lower than last summer. However, the recent resurgence in feed and energy commodity costs may curtail the current deflationary period. 
  • Egg prices jumped 5.9 percent in August but are still 13.1 percent below the August 2008 level.

 Click here for the full report.