Rare bout of food deflation thankfully seen abating in 2017

by Josh Sosland
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Josh Sosland
In an already challenging, highly competitive environment for grain-based foods in 2016, baker efforts to generate growth were hampered by a highly unusual development in retail food — price deflation. Retail food prices declined 1.3% in 2016. Led by the precipitous 21% drop in egg prices, it was the first time since 1968 that retail food prices were down for a calendar year.

It wasn’t only eggs. Prices for meat, dairy, fats, sweets and beverages all declined last year. Grain-based foods did not escape the trend either. The Consumer Price Index for baked foods and cereal products fell 0.3% in 2016. Within this category, 14 of 18 grain-based sub-categories were lower in 2016, led by cereals, down 1.2%; flour and mixes, down 2.1%; rice, pasta and corn meal, down 1.5%; and crackers, off 0.5%. Bread was down a modest 0.1%.

Relief appears to be at hand. Projecting a better year for retailers in 2017 than in 2016, Moody’s Investors Service is forecasting food price inflation of 1% in the current year, a 2.3-point swing. Commenting on other trends, the credit rating agency suggested retailers (and perhaps food processors) need not worry excessively yet about the threat posed by on-line sales. Moody’s noted on-line food sales, while showing signs of growth, still account for less than 1% of total sales, a share that is not expected to climb past 3% during the next five years.
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