In response to pandemic constraints (and concerns) food purchases in the United States surged in March 2020 and remained elevated for two years (see first chart below). Demand exceeded preexisting supply capacity for groceries (if not for all food). Despite the sudden increase in grocery pull, price increases lagged demand increases for several months. But as demand persisted — especially after Food-Away-From-Home sales (FAFH) recovered in 2021 — prices steadily, even sharply, increased (see second chart below, follow the red line).
Real — inflation-adjusted — consumption of groceries peaked in late-2021/early 2022 and began a slow decline in actual consumption even as nominal spending continued to climb (and FAFH sales surged). This reflected easier access to FAFH and, probably, some resistance to increased grocery prices. By early 2023 grocery sales (blue lines) had sufficiently normalized that the rate of price increases decelerated (red line in second chart).
According to US Census Bureau surveys and estimates, in September 2023 grocery stores in the United States had retail sales of $72,346 million followed by sales of $73,031 in October. In 2024 September nominal (not-inflation-adjusted) sales were $72,878 million and October sales were $75,793 million. More or less? You can decide. In either case, demand as reflected in real Personal Consumption Expenditures is basically back at pre-pandemic levels. According to the USDA, during 2024 total food price inflation (FAH and FAFH) has been around 2.3 percent on an annualized basis. Grocery price inflation (FAH only) has averaged 1.3 percent. Demand and supply for food are back in balance and prices reflect that balance. The higher inflation rate for Food-Away-From-Home mostly reflects a continuing imbalance of demand and supply for food service workers.
In estimating inflation, food and fuel are often discounted or eliminated. As the charts below suggest, both consumption and prices can be volatile with related economic (and political) consequences. But these are also core expenses. The willingness — even stubbornness — of American consumers to continue higher-than-trend purchases of groceries well into 2022 had significant supply chain implications — that in my judgement are now resolved. Healthy demand is being fulfilled with sustainable supply.
