Food inflation increased at a faster clip than overall inflation in January. The Consumer Price Index (CPI) climbed 6.3% compared to January 2022, according to data from the U.S. Bureau of Labor Statistics. The overall CPI grew throughout 2022, peaking at 8.9% in June. While January’s CPI was a historically large increase, it was the lowest increase since November 2021, according to Betty Berning, analyst with the Daily Dairy Report.
However, food inflation was higher than the overall CPI, with January’s food index jumping 10.1% compared to a year ago. That was also up 0.5% compared to December, on a seasonally adjusted basis.
“Consumers have faced much higher prices on the grocery store shelf for some time,” Berning said. “To stretch their food budgets, U.S. consumers probably will not stop buying staples, such as milk and bread, but they likely will manage their purchasing power by trading down to lower-priced items.”
For example, Berning noted that rather than buying an expensive imported Brie for a cheese platter, they might opt for a block of Cheddar. Or instead of buying a pint of premium ice cream, a family might pick up a gallon of vanilla, paying less per ounce of ice cream.
“Food manufacturers have also been working to manage higher input costs via shrinkflation,” she added. “Shrinkflation means consumers pay the same price for an item, but the volume of food in the package, or the package itself, is smaller.”
Food consumed at home in January drove the overall growth in food inflation, with prices in this category soaring 11.3% on an annual basis. While January’s reading for food consumed at home was lower than the 13.5% peak set in August 2022, it was one of the largest increases on record, Berning noted.
Year-over-year inflation in food consumed at home has grown 10% or more in each of the 11 months leading to January. The last time CPI saw sustained double-digit annual growth was in 1981, Berning said. Furthermore, since March 2020, the CPI for food consumed at home has increased 1% or more year over year in every month, except May and June 2021.
“In response to rapid inflation, the Federal Reserve and other central banks around the world have increased interest rates, hoping to cool consumer spending,” Berning said. “Inflation has affected food, a basic human need, at a greater level than other items, even in the developed world. As people manage their budgets with less discretionary income, more substitution of higher-end food items with commodity-style products will likely occur, including in dairy.”
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