Energy, Drought, and Economics: How Food Inflation Affects Us All

As a recent Congressional Research Service (CRS) report states “everyone eats,” and food price inflation, like it or not, is as inextricable from your life as food itself. But just what are the effects of that inflation? A recent CRS study may have some answers.

Historical perspective

Food prices have, in past eras, been subject to sudden and sometimes drastic fluctuations in price.

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Depicted in the graph above, food prices from 1914 all the way into 1985 were, in aggregate, extremely volatile–due primarily to the global effects of WWI, WWII, and energy crises. But since 1985, prices have shown comparatively stable deviations, even in the face of the great recession.

The impact on U.S. vs. the rest of the world  

Alone, food price inflation means very little to the average consumer, but when equated to a share of their annual budget, it’s clear that the U.S.–even its poorest citizens–are fairly well-off when it comes to eating affordably.

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Shown in the list above, of the 70 countries analyzed, the U.S. has the lowest share of their budget devoted to food–boasting a 6-7 percent lower average than developed countries like Japan and France.

Using consumer income and comparing food as a share of ones total budget, the CRS compiled the percentages which people in other nations spend on food annually.

Despite a relative edge compared to the global expenditure, when broken down into quintiles, lower quintiles (expectedly) spend a greater share of their overall budget on food.

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As shown in the graphs above, lower quintile incomes tend to spend a greater portion of their budget on food-at-home. The CRS study concludes that as a result of this habit, these lower income brackets are also at the whim of fluctuating retail food prices–making them especially vulnerable to inflation.

Trends in food consumption

It turns out when your superiors in age bemoan the decline of the home cooked meal, their claims may have more foundation than you think.

According to the CRS, away-from-home food spending has increased markedly over the past 80 years.

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The CRS research states that since 1930 the out of home food consumption has increased by 29 percent. But what does this have to do with inflation?

According to the CRS, out of home consumption is much less volatile in terms of price inflation. Since single person households and multiple adult households are far more apt to eat away from home, they are consequently less economically susceptible to changes in food price inflation.

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Where are we now?

The CRS forecast for food inflation looks to be in some ways more of the same. The CRS shows that the “on-again, off-again” economic activity has coincided directly with the monthly change in the food Consumer Price Index.

Since a major deflationary period in 2009 following the economic crisis, retail food prices have continued to rise steadily–especially in the meat sectors.

It’s difficult to say what will happen to the price of future food retail when factors range from energy, to drought to economic downturn. Some recent concerns have been the ongoing drought in california, and it’s possible impact on produce.

The report seems to state at least once conclusion very clearly.

“Lower-income consumers who spend a significant share of their household budget on food are likely to be impacted more severely by rising food prices, to be more responsive to price changes, and to be forced to make more difficult budgetary tradeoffs than high-income consumers with lower food budget shares.”

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James Pero