Deeper declines in food prices at grocery stores. Rising restaurant prices. The combination found in the latest CPI numbers explain a big part of the diverging performance evident in the latest retail spending trends (found here).
The spending trends show a consumer selectively spending more in certain categories—especially online—while holding the line in other categories.
The decline in prices for food at home deepened to a -1.9% year-over-year rate in August. Also factor in low fuel prices, and this has helped consumers offset the higher prices (+2.8% in August) at the restaurants they prefer over preparing meals at home.
The combined impact of food prices and preferences explain the weakness in grocery store sales (up by less than 2% this year) versus the strength in restaurant sales (up a healthy 6% this year).
These extremes in food price trends are among a number of significant price effects on households that are otherwise hidden in the Consumer Price Index (CPI) data on inflation—which remains modest overall:
- Inflation excluding food and fuel—the so-called core inflation rate—edged higher to 2.3% in August, which is just above the 2.2% year-to-date rate. Overall inflation including food and fuel remains much lower, near 1%. That’s because energy prices remain down from a year ago.
- In food at home, price declines are led by meats, poultry, dairy, and processed fruits and vegetables. This is driven by a number of factors, including lower transportation costs, lower import prices because of a strong dollar, elevated supplies, and weather effects.
- In apparel, prices are nearly flat across the board as measured month-to-month, year-to-year, and year-to-date.
- In addition to food service, price pressures are rising and focused in services generally, led by rent and medical care. Lower grocery prices help consumers offset these rising price pressures as well.
- Energy prices remain down by nearly 10% from a year ago and are flat month-to-month.
See the table summary for more detail.
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