Food inflation, which continues to drive more people into food insecurity both here and abroad, appears to be picking up once again for a variety of reasons. According to the U.S. Bureau of Labor Statistics, both the Consumer Price Index (CPI) for groceries and for food eaten away from home increased 0.4% in August compared to July, while the overall index rose 0.3%. On a year-over-year basis, the index rose 5.2% in August.
“Globally, the trend is pretty much the same,” said Betty Berning, analyst with the Daily Dairy Report. In August, the United Nations Food and Agriculture Organization Food Price Index (FFPI) increased more than 3% on a month-over-month basis, following two months of declines. On a year-over-year basis, the FFPI jumped nearly 33% from August 2020 levels.
Updated data from USDA’s Foreign Agricultural Service shows that last year a projected 921 million people were food insecure, an increase of 160 million people from pre-pandemic estimates. FAS noted that impacts from Covid-19 will likely persist, and by 2030, food insecurity will be nearly 27% higher than pre-Covid estimates.
“In the United States, labor shortages, ingredient and packaging scarcities, and rising commodity costs have been driving the uptick in inflation, and now that Covid-19-related unemployment benefits have dried up, low-income families have undoubtedly started to feel the pinch of higher food prices,” Berning said.
Surprisingly, she added that the CPI for dairy and related products fell 1% in August, compared to July levels, after rising for four consecutive months, but the reprieve will likely be short lived. Globally, the Food and Agriculture Organization’s indices for vegetable oils, dairy, cereal grains, meat, and sugar in August were between 14% and 68% higher than in the previous year.
“Several food companies, including Nestlé, PepsiCo, Conagra, and General Mills, have said they plan to pass higher input costs along to consumers, and other food companies will likely follow suit,” Berning notes. “Nestléexpects higher costs to persist in 2022, but Dollar General has stated it will not raise its prices in the face of increased costs, and instead, will change its product mix to keep prices low to meet its demographic’s needs.”
Soaring fertilizer prices will also impact food prices later this fall and well into next year if farmers reduce fertilizer use. Soaring natural gas prices spurred Illinois-based CF Industries, a major fertilizer manufacturer, to recently suspend production indefinitely, according to CNN Business. The company provides food-grade carbon dioxide, a byproduct of fertilizer production, to meat processors and suppllies 60% of the gas used in the United Kingdom. Food-grade carbon dioxide is used to extend shelf life of some food products as well as to stun animals for slaughter and in carbonated drinks. Analysts expect UK food shortages to begin within weeks due to the lack of food-grade carbon dioxide.
Developing countries, such as Russia, Mexico, and Brazil have been harder hit by food inflation than developed nations, Berning said. Looking ahead, central banks face a delicate balancing act with interest rates. “A rate increase would curb inflation but possibly derail much-needed economic recovery,” she said. “With the looming financial uncertainty and ongoing inflation creating higher food prices, the demand outlook for dairy looks murky.”
