U.S. Retail Food Prices Expected to Keep Rising

WASHINGTON, D.C. -- The U.S. Agriculture Department (USDA) predicted a 3.5- to 4.5-percent increase in retail food prices this year, according to a Wall Street Journal report. The potential surge in prices follows a mere 0.8-percent increase during 2010, which marked the slowest rate of growth since 1962.

Conversely, 2011's predicted growth rate would be the fastest one-year growth rate since 1978, and the biggest since 2008's 5.5 percent. The higher costs shouldn't come as a surprise; the USDA has noted the increase in several of its monthly forecasts for retail food inflation, and has predicted a 3- to 4-percent increase since last February.

Larger food manufacturers have been able to pass on some of the rising costs to consumers, but many grocery stores and food vendors have cut the volume of products slated for price increases as wallet-wary shoppers choose to purchase cheaper items and fewer staple goods, according to the report. Restaurant operators have struggled to cope with the same price increases as many consumers opt to eat at home, although Bureau of Labor Statistics data shows that grocery prices in September were 6.3 percent higher than a year ago, compared to an annual increase of only 2.6 percent for food eaten away from home.

Supervalu CEO Craig Herkert told the WSJ that the supermarket chain with the third-largest sales in the United States, has passed most of its increased costs along to consumers, but is careful to offer price-sensitive customers incentives to stay. "If our prices are too high, people will wait until they're on sale," he noted.

The company's focus on price promotions is especially crucial for Supervalu's discount chain Save-A-Lot. Forty percent of its sales come from customers who use federal food stamps. Save-A-Lot opens at midnight on the days the food stamp cards are replenished, and it tends to offer special mid-month sales when benefits are running low.

If inflation projections are accurate, consumers may grow accustomed to such spending habits. The agency has predicted a food cost increase of 2.5 to 3.5 percent for 2012 without surprise events such as subpar harvests. One percentage point worth of change is equal to approximately $12 billion in annual spending, according to the report.