Some retailers have announced price cuts in effort to boost sales.
(Squirrel_photos)
Inflation has slowed down since reaching record highs in 2022. But prices at the grocery store don’t seem to be falling at the same pace.
The most recent consumer food insights report from the Purdue Center for Food Demand Analysis and Sustainability shows consumers spent an average of $129 per week for groceries and $73 on restaurants and carryout. That puts total food spending at $202, up 10 percent from April of last year.
The Consumer Price Index from the U.S. Bureau of Labor Statistics measures food inflation at 2.2 percent – unchanged from last month. For food at home, it decreased by .2 percent.
However, consumers are still paying for the effect of high inflation levels in past years exacerbated by the COVID-19 pandemic. Because while food inflation may be falling, the price of other goods isn’t.
Transportation is one costly reason grocery prices are staying high. Retailers rely on road transportation to stock their stores. The CPI measured gasoline inflation at 2.8 percent – a 1.2 percent increase.
“Those prices have gone up. And that would be your predominant reason why grocery prices that fall in wholesale food prices is not perhaps translated to a fall in grocery prices,” said Phil Powell, executive director of the Indiana Business Research Center and associate clinical professor of business economics at the Indiana University Kelley School of Business.
Labor is also a necessary cost. According to the U.S. Treasury, real wages have grown faster after the pandemic than before. The unemployment rate in Indiana is just below the national average at 3.6 percent.
Grocery stores are dealing with higher costs in its supply chain which results in higher prices. Consumers then have less money to spend on food, especially when rent and housing prices are also increasing.
Powell said the economy is strong, but many people are not benefiting from that.
“There's a real inequality in the economy right now. You know, the inequality between rich households and poor households is the biggest it's been in a century,” Powell said. “You’ve got wealthy households that have enjoyed a growing stock market, a strong economy, and they've actually been willing to buy more expensive food. But then you have households at the bottom end of the spectrum that feel the inflation and they have gravitated toward cheaper brands at the grocery store.”
Meanwhile, grocery stores are thriving.
“A lot of households are still willing to spend a lot of money on expensive food, because the economy is actually doing pretty well. And so that creates opportunity for growth for both premium grocery stores and discount grocery stores,” Powell said.
Walmart operates 5,214 stores nationwide. Almost 600 of those are Sam’s Club. Walmart recently reported earning a net income of around $18.9 billion in the past twelve months leading up to April. That’s about a 67 percent increase year-over-year.
The company also announced in January this year its plan to open 150 new stores this year and remodel 650 of their existing stores.
Kroger announced it would cut prices after merging with one of its competitors, Albertsons. Kroger tried to acquire Albertsons for $24.6 billion. But the FTC sued to block the proposed merger, citing concerns it would reduce competition, cause higher prices and increase financial strain for those consumers affected.
Still, Kroger operates around 150 stores in Indiana and around 2,800 nationwide. They reported a net income of around $2.2 billion for the twelve-month period ending in January of this year. That’s about a 3.5 percent decline year-over-year.
Aldi announced in March they plan to open over 800 new stores nationwide this year, investing more than $9 billion over the next five years. The company also acquired Southeastern Grocers which operates Winn-Dixie and Harvey Superstores in the southeast region of the U.S.
“The issue is that the economy has been strong… when people spend more money, it drives up prices,” Powell said. “That's going to disproportionately affect the poor households who have not enjoyed the benefits of a strong economy and a strong stock market.”
Many retailers, including Walmart, Aldi, and Target, have announced price cuts to try to incentivize shoppers and boost sales.
