Speaker 1: Inflation has steadily cooled over the past two years, despite seeing a slight stall in October and November of 2024. Prices for items like gasoline, used cars, and energy have declined accordingly. But food prices continue to outpace inflation, increasing by 28% since 2019.

Speaker 2: I just spent $33 on dinner tonight. I'm literally just making lasagna soup.

Speaker 3: What are you talking about? It was $8.25, now $6.89. Like, this is some amazing deal. For four chicken breasts, $10 to $11.

Speaker 1: 86% of consumers reported feeling frustrated with rising grocery prices, and over a third said they have resorted to buying fewer items to save money.

Speaker 4: That's one of the real gauges people have of their cost of living because it's an important aspect of their cost of living, and it's something that we have a lot of exposure to. We go to the grocery store. We pick up the different products. We look at the prices.

Speaker 1: So why are grocery prices still so high, and what can be done to bring the costs down? Like any other business, food processors, manufacturers, and retailers face various operating costs to get food from the farm to the grocery aisle. These costs play a key role in how products are priced. Just 15.9 cents for every dollar spent on food goes to the farm that actually produced it.

Speaker 4: There's so much more that goes into the cost of our food than just the actual food itself. There's a lot that goes into the producing it, moving it around, the transportation, the marketing, getting it on the shelves. It's not just the food. It's all of the inputs that go into it.

Speaker 1: Unexpected global events set the stage for a sudden rise in food costs.

Speaker 4: It was a global pandemic. There were disruptions all around the world in terms of production. At the same time that you just have this unexpected, unprecedented wave of demand, that is a recipe for it to really break down and you to go into the grocery store and see empty shelves or go into the grocery store and see really higher prices.

Speaker 5: Then in 2022, you had Russia invade Ukraine. That caused huge shocks to agriculture, commodity prices, especially wheat. Well, this starts feeding back on itself because what it does is it makes, let's say, animal food more expensive for cows, pigs, chickens, et cetera.

Speaker 1: The surge in inflation added more pressure on food manufacturers and retailers.

Speaker 6: All the costs that are incurred after the farm, it's all the processing costs, the energy costs, the wage costs, all these things contributed to much, much higher prices. And these all were rising from about mid-21 onward and they continue to rise.

Speaker 5: Really what you've had experienced since 2021 is sort of this massive, what we call cost pass-through that has occurred. The idea of cost pass-through is just, imagine I'm a manufacturer, I'm producing an item and let's say, it's a case of product, it costs me $10. I may turn around and sell that for, let's say, $18. Let's say my costs go up 20%. Now, all of a sudden that means I'm paying $12 for this product or I'm incurring a $12 cost to make it. At minimum, I have to now charge 20, but likely I'm gonna charge a little bit more than $20 because I have to protect what we call my gross margin rate. That goes to the wholesaler. Well, the wholesaler is now seeing a $2.50 increase. They not only have to raise their selling price by $2.50, but they may raise it by $2.75 to the grocery store. The grocery store now sees $2.75 of greater cost. So they may end up charging $3 more overall because everybody's trying to protect their margin as we move through the supply chain.

Speaker 1: Operating costs for food manufacturers reached a peak during the fourth quarter of 2022, seeing a nearly 19% increase compared to five years prior. But while operating costs have come down significantly, most experts remain pessimistic about a sudden deflation in food prices.

Speaker 4: Once the price goes up, it tends to stay up. The inflation may come back down so you don't see the big price increases, but outside of widespread depression, we don't tend to see prices falling across the board.

Speaker 5: The last time we saw actual decreases in grocery prices that were substantial was really late, late 2015, but primarily 2016. It's important to remember that that year saw a very sharp drop in oil prices and also commodity prices came down further. And so you really have sort of a unique set of circumstances that caused actual deflation in food prices in 2016. None of us are expecting that to occur in 2025.

Speaker 4: There are some categories where we've seen prices come up and down. Eggs are a good example. They did come back down quite a bit after the big surge. So it's not to say that there aren't individual prices that will come down, but as a category, most goods and services, once that price goes up, it stays up because again, you think of a big input cost in a lot of places are things like wages or building costs, things that would be difficult to then reverse. You just don't keep increasing them at the same pace.

Speaker 1: In recent years, there's been another popular theory behind the rising cost of groceries, price gouging.

Speaker 7: The question is, have groceries gotten more expensive just because of inflation, that is passing along higher prices, or is there more going on here? We all need food to survive.

Speaker 8: No matter what the price is, what that has meant over the last couple of years is that retailers have been able to take advantage of this. 63% of Americans surveyed in the U.S.

Speaker 1: 63% of Americans surveyed in 2024 blamed price increases on large corporations taking advantage of inflation. Corporate profits accounted for well over 40% of inflation between the end of 2019 and mid-2022. In comparison, corporate profit drove just 11% of price growth over the 40 years prior to the pandemic. A report from Groundwork Collaborative also revealed that some of the largest food corporations have openly discussed their ability to keep prices high, even as inflation cools down.

Speaker 9: The other thing to remember in all of this that we've talked about many times is our grocery products pricing is very sticky. And so the pricing that we've taken and that we're in the midst of executing the additional price increase, that pricing will, by and large, just stay.

Speaker 10: Our actions around pricing and productivity have stickiness to them. While they address margin gaps in the near term, they will drive margin enhancement when inflation stabilizes.

Speaker 8: The grocery sector as a whole is deeply concentrated. They have very little competition. And so this is what some economists call classic collusion, where big companies sort of side-eye each other and listen to each other's earnings calls and think, hey, they're not lowering their prices, so we're not gonna do that either. And that sort of facilitates this really sticky, high-priced situation that we find ourselves in.

Speaker 1: A 2023 report from the U.S. Department of Agriculture revealed a significant increase in market concentration within the food sector over the past 40 years. Between 2018 and 2020, just two seed companies controlled 72% of corn acres and 66% of soybean acres. And most metropolitan areas saw just five to six store chains accounting for most of the supermarket sales. But some economists remain skeptical about whether real price gouging is happening within the food sector.

Speaker 5: We've not seen any evidence from the Service Annual Survey of unduly large gross margin rates, not only in grocery, but also what we call warehouse clubs and superstores. That's your Walmarts, your Targets, your Costcos.

Speaker 1: Gross margin rate for some of the biggest U.S.-centric grocery retailers have not seen enough gains to show price gouging. The same goes for food manufacturers that are more global in scale.

Speaker 6: We have regulatory agencies to watch over this stuff for a reason, but I think there's plenty to explain what's gone on in the food price, grocery store inflation, based on underlying fundamentals in the market. You don't have to resort to arguments that, oh, this is price gouging on the part of these companies.

Speaker 1: To account for high costs, more families are dipping into their savings or relying on their credit cards, buy-now-pay-later programs, or even payday loans to pay for their groceries. 60.5% of adults reported paying for groceries with a credit card in 2023, but just about a third said they paid the charge in full, while 7.1% said they haven't even made their minimum payments.

Speaker 8: It means that people are going to desperate lengths to buy something that is just essential.

Speaker 1: In 2023, U.S. consumers spent an average of 11.2% of their disposable income on food, with an average family spending about $3,187 for food at home per year.

Speaker 6: I can sit here and say that food expenditures are small relative to the income that most households make, but for poorer families, that's not the case. It is high.

Speaker 1: In 2023, low-income households spent an average of 32.6% of their after-tax income on food, compared to just 8.1% for households earning the highest income.

Speaker 8: If you're a low-income family, you have to spend on the essentials, right? There may not be much left after that. So as a result, what that means is that when prices for essentials rise, when prices for groceries rise, that really hits low-income folks the hardest.

Speaker 4: During the pandemic, there were some extra programs that were put in place to really help people kind of beef up those benefits during the pandemic, and those have expired, but they did give an example of how we can strengthen those kind of programs. So if we're really all fired up about how expensive food prices are, and we're worried about people being left behind, we do have public policies that we can shore up to help people who really are getting hit hard by those higher prices.

Speaker 1: Other policies could help prevent prices from rising too much, or help Americans better cope with higher prices.

Speaker 5: Improving access to guest worker visas and making that program more efficient so that farmers can get more labor in order to make sure products can be supplied smoothly. Making sure that we have good, smooth transit of imported goods from Mexico, you know, avocados that everybody loves as an example, into the United States and have border crossings flowing smoothly.

Speaker 8: Wages keeping up is really important, and we should definitely put in more reforms and structure to make sure that wages do continue to rise, encourage unionization, encourage other forms of collective bargaining. And at the same time, we do need to address the underlying issue of profiteering in the retail industry. Your dollar only goes so far if someone at the top is making everything you buy more expensive.

Speaker 1: In August 2024, the FTC and the Justice Department held a first public meeting on illegal price gouging in several industries, including food and agriculture. While over 40 states banned price gouging, there's no federal law preventing corporations from gouging prices.

Speaker 8: And then, you know, next year we have a big tax fight coming up, and raising the corporate tax rate, as unlikely as it might seem in this political environment, would actually be a real deterrent to these big companies to price gouge their consumers, because price gouging is a lot less fun if you have to ship a bunch of your earnings over to the IRS. And so there are policy tools that we can use to address this issue, and I think it's really critical that we start to look really expansively at the things that we can do to make food prices more affordable for everyday consumers.

Speaker 1: But some experts question how far policies can really go to affect food prices.

Speaker 4: There's no silver bullet in terms of bringing down food costs.

Speaker 5: We've went through a brutal inflationary cycle for food. There's really nothing government policymakers could really do about this. This is not something unique to the United States. This has been felt around the world. And right now, we just have to wait and see how things will play out as we move forward.

Speaker 1: The uncertainties introduced by the current political climate also make it challenging to predict the future of grocery prices.

Speaker 8: There's no doubt that tariffs will massively make things more expensive, especially food. There's a lot of food that we all like to eat that we don't grow in the United States. So any food that we import gets a lot more expensive when you add a tax on that. Same thing with mass deportations. I mean, we have workers in this country who really prop up our food system, who make sure that the things that we want on our tables get grown, get packaged, get driven across the country. And when you start to really harm that workforce and send them away, that harms our entire economy. So I think there's absolutely no doubt that things will get more expensive under some of the policies that we're seeing the Trump administration propose.