The Real Reasons For Rising Grocery Prices

At 2.2%, U.K. prices rose a tick more than expected. By contrast, heading downward, the U.S. inflation rate is 2.9%. Both though have a 2% goal for the 12 month rise in prices.

Grocery Prices

Much more tangibly, we can look at grocery prices. At the supermarket, since 2024, our food basket surged by 20%. Now though, based on the plunging inflation rate, prices will rise much more slowly. So no, what we pay at the grocery store is not down for most items. But the increases will be minimal.

They will be far less than the 2022 pop in prices:

Explaining what spurred the 2022 increase, The NY Fed’s Liberty Street Economics took us to three reasons. First, they cited commodity prices. Between the fourth quarter of 2019 and first quarter of 2023, the commodity price index for food-at-home rose a whopping 25%:

Then, also, grocery workers’ wage hikes outpaced the increases in the labor force and food manufacturing. Still, at $21.60 an hour, they earn an average of $13 less than the private sector average:

Our last boost to grocery prices is a small one. Economists believe that increases in grocery store profit margins were relatively small.

Our Bottom Line: Inflation

Many economics books would tell you that we can have demand pull, cost push, or a single cause of grocery price inflation. Demand pull refers to too many dollars chasing too few goods while cost push focuses on land, labor, and /or capital rising in price. Meanwhile, the singular cause is one commodity going up in price and then rippling through the economy…like oil. Then, to all of this, we can add the monetarists that say it is all about the money supply and nothing else. When too many dollars circulate, prices rise.

Returning to grocery prices, we could say that were dealing with cost push inflation that intensified with the Ukraine invasion. And finally, adding to cost push, the consumers that accumulated food and commodities during the pandemic created some demand pull.

My sources and resources: With articles about the U.K. and U.S. inflation rates everywhere, I chose the BBC and CNN. From there, for grocery prices, the NY Times and Liberty Street Economics had the details. (Please note that we copied today’s “Our Bottom Line” from a past econlife post.)