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As concerns about inflation mount, food prices are gaining attention

Consumer prices rose more than five percent last year, raising concerns about inflation. While food price inflation was lower, rising food prices are getting a lot of attention.

The pandemic has far-reaching effects on the food and agricultural markets. In spring 2020, for example, the closings of packaging plants resulted in lower prices for cattle and pig producers and higher prices for meat consumers. Although many issues have been resolved, supply chain disruptions continue to drive up consumer food costs.

In June 2021, consumer prices for groceries rose significantly compared to the previous month, but compared to June 2020 by a modest 2.4 percent. That is only slightly higher than the average food price inflation rate of 2.0 percent over the past 10 years.

Pat Westhoff

Averages can be misleading, of course, and digging a little deeper tells a more complicated story. For example, consumer food prices were particularly high in June 2020 due to the pandemic, but then remained relatively stable for the next nine months before another sharp rise set in in April 2021.

The new round of promotions has various causes. In the fall of 2020, the prices of many agricultural raw materials began to rise. Increased demand from China, a decline in crop production in the US and Brazil, and a host of other factors drove prices from corn to pigs up. While commodity prices at the agricultural level are only a small fraction of the consumer cost of food, higher prices at the agricultural level ultimately lead to at least some increase in food market prices.

Costs incurred after the raw materials leave the facility also contribute to food price inflation. One clear indicator is that the prices of food consumed outside, such as the cost of a meal in a restaurant, have increased much faster than the price of food consumed at home. In June 2021, prices for eating at home rose only 0.9 percent from the same month in 2020, while prices for eating out rose 4.2 percent.

A pan of scrambled eggs, crispy bacon, sautéed onions, sautéed peppers, and cheddar cheese is served at Magic City's Remarkable Diner in Barberton.

That spike in the cost of dining out is the biggest since spring 2009. Persistent supply chain disruptions are likely part of the story – think of the signs you may have seen in restaurants that certain items are not Are available.

Another factor driving food costs up in restaurants is labor costs. Businesses in general have a hard time filling and restaurants find it necessary to offer higher wages to attract waiters and cooks.

Some of these factors will continue to put upward pressure on food prices, but food price inflation out of control looks unlikely. The futures markets indicate that prices for agricultural commodities could stabilize or even fall in the next year. Supply chain problems should eventually be resolved.

The pandemic is of course not behind us. Coronavirus cases have risen in Missouri and across the country. Even where there are no formal restrictions on individuals or companies, many people choose to be careful. For example, personal attendance at our annual professional meetings that are now underway has decreased significantly and some people are reluctant to eat out. Life has not returned to normal, and neither has the food sector.

Pat Westhoff is the Director of the Food and Agricultural Policy Research Institute at the University of Missouri and Professor of Agricultural Sciences and Applied Economics. The opinions expressed here are his own and do not reflect the official positions or endorsements of the University of Missouri.

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