The bad news is that food inflation is climbing. The latest U.S. Department of Agriculture food price outlook, published last Friday, projected a 3.2% advance in grocery prices this year. Experts such ass Ricky Volpe, an agribusiness professor at California Polytechnic State University who previously worked at the Department of Agriculture’s Economic Research Service, expect mire like 4% to 4.5%. “Food is going to become less affordable, and consumers should be prepared for it,” Volpe told Bloomberg.
The really bad news is that the Federal Reserve’s standard inflation fighting tool–an increase in interest rates to slow the overall economy–is likely to be ineffective since the increase in prices is being driven by supply-side problems that include bad weather, tariffs, and a shrinking cattle herd. Beef prices rose to a record in April thanks to the smallest cattle herd in 75 years.
In April, food prices rose by the most in nearly four years.
Lurking in the wings is a potential stronger that usual El Niño weather pattern that could disrupt global food supples
The United States saw its warmest-ever start to the year, with temperatures running about 6F (3C) above average through the end of April, according to the National Centers for Environmental Information. The early heat prompted some domestic crops to begin blossoming weeks ahead of schedule instead of remaining dormant throughout the winter, leaving them exposed to subsequent frosts. Heat and drought in the western and central United States spell more pressure on prices. California, which accounts for almost half of annual U.S. vegetable revenue and three-quarters of fruit and nut cash receipts, has seen diminished snowpack in the Sierra Nevada this year—at just 23% of typical levels as of mid-April. And that has increased worries about water supplies for irrigation.
Drought has also spread across grain-producing states, where staple wheat crops have withered for a lack of rain. As of May 19, 70% of U.S. winter wheat production was in areas of drought, along with 25% of corn production, according to the National Drought Mitigation Center at the University of Nebraska-Lincoln.
Forecasters now say an El Niño weather pattern is likely to emerge by August, with rising odds of an unusually powerful event that will persist into 2027 and push global average temperatures higher. El Niño can often steer extra rain to California, but it’s also been known to fuel drought outside the United States in major growing areas for rice, coffee, cocoa and more. Farmers in some of these areas are already struggling with higher prices and short supplies of fertilizer because of the Iran war. Prices for fertilizer are up 20% since the war began.
The increase in food prices comes as household debt is rising and as real average hourly earnings fell in the 12 months through April for the first time in three years.
