Here’s How Soon Grocery Prices Could Go Down, According to Experts
According to the United Nations’ Food and Agriculture Organization, global food prices have increased by 65% since the start of the COVID-19 pandemic — and haven risen by 12% this year since the Russia-Ukraine war began, Morgan Stanley reported.
When will food prices level off? Although everyone seems to have an opinion, most experts are sticking to the short answer provided in a recent CNBC Select report: “There’s no straight answer on when prices will go down, but it’s not too far off.”
The latest Consumer Price Index (CPI) has food prices increasing across the board, and year-over-year increases have been significant. The overall food index rose 1.0% in June after experiencing a 1.2% rise in May. In the past 12 months, the food index has increased by 10.4% — and the food at home and food away from home indices are up 12.2% and 7.7%, respectively, over the same time span, per the U.S. Bureau of Labor Statistics (BLS).
Fed Fighting Inflation With Rate Hikes
So far, the U.S. has been battling ever-rising inflation with more aggressive Federal Reserve interest rate hikes this year. On July 27, the Fed raised interest rates by three-quarters of a percentage point — to a range of 2.25% – 2.50% — as it tries once again to put a dent in inflation growth and consumer prices.
But rate jumps take time to have an effect on the economy. Speaking after the rate increase announcement, Fed chairman Jerome Powell said that he and his colleagues are monitoring the situation tightly and trying to find clues as to where their efforts are making the most impact, per Reuters.
“We do want to see demand running below potential for a sustained period to create slack and give inflation a chance to come down,” Powell said. “It’s also worth noting that these rate hikes have been large and they’ve come quickly, and it’s likely that their full effect has not been felt by the economy.”
Inflation Not Necessarily Transitory, But Has Peaked and May Unwind
According to Axios, some progressive analysts are pointing to a number of encouraging factors that show inflation to be easing rather than getting worse. Gas prices have decreased at their quickest pace since the pandemic started and key indicators, like lumber, are down from recent highs.
Dean Baker, senior economist at the Center for Economic and Policy Research, agreed, claiming, “There are a lot of reasons for believing that inflation has peaked,” per Axios.
Chicago-based financial services firm Morningstar is being more direct with its predictions, claiming that this year will be the worst for inflation, but also that rates will go down by 2023. Speaking to CNBC, Morningstar’s head of U.S. economics, Preston Caldwell, hinted that this year’s Personal Consumption Expenditures Price Index (PCE) — the same broad inflation measure used by the Fed — will be around 5.2% before dropping to around 1.5% between 2023 and 2025.
“While consensus has largely given up on the ‘transitory’ story for inflation, we still think most of the sources of today’s high inflation will abate, and even unwind in impact, over the next few years,” Caldwell said. “This includes energy, autos and other durables. Worries about inflation broadening out into the rest of the economy, including via high-wage growth, look overblown.”
Experts Remain Divided, Hesitate to Offer Hard Target on Inflation Abatement
In a recent Wall Street Journal opinion piece, Princeton economics and public affairs professor — and former vice-chair of the Federal Reserve — Alan S. Blinder stated that the two major indexes, energy and food, don’t necessarily have to return quickly to “normal” levels, they just have to stop rising so rapidly.
“Are we doomed to high inflation for years? No. One day, hopefully soon, food and energy prices will level off and the supply chain problems will dissipate,” says Blinder. “Depending on the details of timing, inflation will fall as quickly and dramatically as it rose. We’ve seen it happen before.”
Despite positive signs, unpredictability continues to reign when it comes to the economy — or the question of when inflation might slow: “Because think tanks, research organizations and economists use varying reasoning, it’s difficult to give a clear answer,” CNBC’s Trina Paul wrote.
More From GOBankingRates