The Four Actual Reasons Why Food Prices Are Still High

The fact that inflation is still declining is good news. S&P Global reports that inflation has significantly decreased this month, and the most recent price data indicates that inflation will soon drop below the Federal Reserve’s 2% objective.

Why is the average American household still spending so much money at the grocery store if costs are declining everywhere else? Where does the disconnect exist? Although there isn’t just one cause for the high cost of food, the following four factors have an effect on costs as well as your personal budget.

Demand in the pandemic era

Demand brought on by the pandemic started it all. Gregory Daco, the head economist of EY-Parthenon, told Vox that demand increased as consumers filled up on groceries.

Prices increased as a result of shortfalls in supply brought on by increased demand. That was, however, over four years ago. David Ortega, an associate professor at Michigan State University, stated that supply chain difficulties from the outbreak remained. Among them were:

• Transporting food across the nation became more costly for farmers and retailers due to rising gas prices.
• Costs were rising. For instance, farmers had to pay more for essential goods like fertilizer.
• Due to a manpower scarcity, firms had to increase labor costs.

Consequently, price hikes were passed along to customers in the form of higher grocery shop prices.

War

The February 2022 invasion of Ukraine by Russia severely damaged the world’s food supply. The primary exports from Ukraine are agricultural goods, which make up 41% of the nation’s total exports. Food items such as corn, wheat, sunflower oil, and barley are among these products. Although some exports have been maintained by the Ukrainians, the situation is still unstable enough to affect the world’s food supply.

There is concern that a new conflict, involving Israel and Hamas, may further strain the food supplies. Prices for electricity and fertilizer will probably rise if the fighting extends to nearby areas, which will lead to inflation in a variety of goods, including food.

Although the war between Israel and Hamas hasn’t escalated yet, there are worries that it might be enough to affect pricing.

Concerns About The Climate

The World Economic Forum says that extreme weather events including heatwaves, droughts, storms, and floods are being brought on by climate change. Here are three instances of how American bank accounts will eventually be impacted by climate change:

• The Mediterranean’s severe drought harmed olive trees and produced a meager harvest. Olive oil prices have therefore reached an all-time high.
• The rice harvest has been severely damaged by a combination of drought and flooding in California, Thailand, India, and Italy, which has affected rice prices globally.
• Corn and soybean growers in the American Midwest are worried about harvests due to the current drought. Concurrently, Argentina has issued an agricultural disaster proclamation affecting areas cultivating corn, soybeans, and wheat.

Manufacturer Greed

Experts in the food business claim that recent events have provided food producers with the justification they need to raise prices beyond what is necessary. Manufacturers have increased their earnings and perhaps management compensation by raising prices.

Mark Lang, an associate professor of marketing at the University of Tampa, told CNN that although production prices have gone up as a result of rising salaries, packaging, and transportation expenses, “they are, to me, absolutely profit taking.”

According to Lang, businesses are keeping their high pricing the same or even raising them during a period when Americans are finding it difficult to pay for food.

Food producers were allowed to boost their prices at the start of the epidemic because they knew it would take some time for customers to recognize that prices had gone up on everything from hand sanitizer to auto insurance.

It doesn’t seem like anyone who is making the decisions is unhappy. Here are two senior executives’ responses, for instance, to the query about increased prices:

• CEO Sean Connolly responded that pricing was “just too low” prior to the pandemic when asked how Conagra was able to boost its prices without losing customers. He continued by saying that Conagra has demonstrated that “consumers will welcome a $4.50 unit” because a frozen dinner is still reasonably priced at that point.
• James Quincey, the CEO of Coca-Cola, declared, “We’ve earned the right to price with the consumers.” It may persuade merchants that increased prices will benefit them as well if it can show that consumers are willing to pay more for Coke.

The CEOs of the companies did not address how rising costs affect the typical consumer, who is compelled to take money out of savings to pay for groceries or severely reduce the amount of food they purchase.

The truth for shoppers is that they would now have to pay $125.51 for the identical grocery basket that would have cost $100 in December 2019. Everyone is looking for methods to save money in light of the increase. Here are a few suggestions that might be useful:

• With each grocery shop trip, you may save money by using the Flipp app.
• You have options to consider if you’re unsure about how you’re going to pay for your food.

Ideally, food prices will decline as inflation keeps going down. We’ll all need to watch out for our neighbors and ourselves in the interim.