Food Inflation and the Consumption Patterns of U.S. Households

By McGranahan, Leslie | Chicago Fed Letter, October 2008 | Go to article overview

Food Inflation and the Consumption Patterns of U.S. Households


McGranahan, Leslie, Chicago Fed Letter


In July 2008, food prices were 6.0% above their July 2007 level. This article examines how different household types have been affected by the recent rapid rise in food prices.

Increases in food prices have been grabbing headlines recently. In this Chicago Fed Letter, I investigate the ex- penditure patterns of different types of households to discover which house- holds have been most affected by food price changes. I find that food price increases have had a more dramatic effect on the purchasing power of low-income households than that of high-income households. This is largely because low-income households concentrate more of their total budgets on food and spend relatively more on food consumed at home.

Figure 1 shows that there have been periodic episodes of high food inflation over the past four decades. However, a number at 6.0% or higher was last seen in 1990. The figure also shows that food inflation was substantially higher than it is today in the mid-1970s and from 1978 through 1980. The gap between food price changes and price changes for other goods has also been growing. For example, food inflation was 6.0% from July 2007 through July 2008, while core inflation (which excludes food and energy prices) was 2.5%. This difference of 3.5% was the largest gap reported since early 1979.

The recent increase in food prices has not been uniform across all food categories. The U.S. Bureau of Labor Statistics (BLS) publishes price changes for over 100 food items and for 17 categories of food expenditure.1 Figure 2 shows that, among these categories, the largest price increases have been in eggs, fats and oils, bakery products, fresh vegetables, and cereals and cereal products.2 Price increases for pork and other meats have been less than or equal to core inflation. But price increases in every other food category have been higher than core inflation.

There has also been a difference in price increases depending on where food is consumed. Prices for food at home are up 7.1 %, while prices for food away from home are up 4.6%. Prices for food at home have historically been more volatile than prices for food away from home. And prices for food at home have tended to increase more quickly when food prices are increasing quickly.

Reasons for food price increases

Food prices have been going up for a number of different reasons. One culprit has been the rise in the price of energy and its effects on food. The energy effect operates in two ways. First, oil price increases have led to increased demand for ethanol and other alternative energy sources. The increased demand for corn to produce ethanol has led to an increase in the price of corn, as well as an increase in the price of other agricultural commodities, because acreage planted with those commodities has been replaced with corn. Second, energy price increases affect food prices through crop production, which is fairly energy intensive.

Another factor behind the run-up in food prices is the decline in the value of the U.S. dollar. This has increased the cost of imports and increased foreign demand for U.S. agricultural output. Foreign demand for food products has also grown because of increasing wealth, particularly in China and India.3 Individual food categories have also been subject to independent influences. For instance, pork prices have not grown as quickly as other food prices in part because of the increases in supply resulting from a successful vaccination program for circovirus. Fresh fruit price growth has partly been due to poor weather in countries producing bananas.

The lower growth in prices of food away from home likely arises from the relative difficulty of adjusting these prices combined with the reluctance of restaurants to raise prices on cashstrapped patrons who may then choose to eat at home.

Food consumption patterns

How households are affected by increases in food prices depends on two factors. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Food Inflation and the Consumption Patterns of U.S. Households
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.