Food Inflation

There's been a lot made about prices at the grocery store lately; in fact, food prices have become a political issue in this election cycle.   

There's no question that food costs have risen over time—by an average of more than 3% a year since before the Great Depression.  The amount of groceries you could buy for $20 in 1913 would cost you $663.08 today.  More recently, according to the Bureau of Labor Statistics, food at home (meaning what you would buy at the grocery story) is 2.1% more expensive today than it was a year ago.  Going back a bit further, we can see that the food price index was essentially unchanged for the five years before the pandemic hit.  That price stability ended with a 4% rise in 2020, another 6% rise the following year, and a shocking 12% rise in 2022—before price increases moderated over the last two years.

There is evidence that prices could be lower if corporations permitted it.  The Federal Trade Commission recently released a report showing that retail grocery firms—which have dramatically consolidated in recent years—are experiencing 7% annual profits, much higher than the previous record of 5.6% in 2015.  The concern is that they may have consolidated to the point where they have pricing power to raise prices beyond their costs and add to inflation.

But to put this in perspective, a 7% profit margin pales in comparison to the 37% margin that Apple maintains on its iPhone brands.  Food is still a low-margin business, and likely to remain that way.

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