Businesses keep food expensive because they can
New York (CNN Business) In the three years since the pandemic hit the United States, the economy has taken paths that academics are still trying to understand.
But food prices have been rising steadily — and peaking may be miles away, writes my colleague Danielle Wiener-Bronner.
Here’s the deal: Though ingredients have gotten cheaper over the past year, food makers aren’t bouncing. The reason: meh, why should they?
Certainly, food manufacturers have to factor in labor and transportation costs, which are still high compared to a few years ago. But at the end of the day, they don’t cut prices because they don’t have to. Because, Surprisethey make more money this way.
When inflation picks up as it has since 2021, it’s not uncommon for big companies of all stripes to seize the moment to raise prices.
“Companies see these as occasional opportunities and don’t want to miss them,” Jean-Pierre Dubé, professor of marketing at the University of Chicago Booth School of Business, told Danielle.
Between 2022 and 2023, food prices increased by 11.3% for various reasons.
Take eggs for example.
The price we pay for eggs in the store rose nearly 140% between 2021 and 2022, and another 70% over the past year, thanks to a devastating bird flu, higher feed and transportation costs, and last but not least, producers who are driving the prices up to hold on to profits. (The price hike is so, um, egg-laying that lawmakers are requiring an investigation into possible price-gouging. Poultry game, you might say? (Sorry.))
However, it’s not just food companies that are taking advantage of the inflationary moment. But eating is the pain most Americans feel because while you might give up a new couch, car, or dishwasher, everyone needs to eat.
Many food companies are forecasting that they could slow or pause price increases — but not cut them, Danielle explains. That’s because the pricing is “sticky.” We get used to paying more and over time we hardly notice it.
“There was pressure in the supply chain and there were increases in raw material costs. But [companies] I think I’ve taken price increases beyond that,” said Mark Lang, an associate professor of marketing at the University of Tampa who specializes in food marketing. “They are absolutely profitable for me.”
Businesses are maintaining or raising high prices at a time when many Americans are already struggling to pay for groceries, especially as the benefits of pandemic-era food stamps are phased out.
“This kind of activity is, by and large, lowering the country’s standard of living,” Lang said.
Will prices ever go down?
Eventually yes… A little.
Some products, like lettuce and tomatoes, have already become cheaper in grocery stores, says Tom Bailey, senior consumer food analyst at Rabobank. (Great news for Americans who are known to love lettuce…)
Bailey added that when companies moderate prices, they need to do so carefully.
“When you start lowering prices, it can erode the value proposition that brands and manufacturers have built to their consumers over the years,” he said. Lower prices, for example, could make people think the quality of food has gone down — or make them think they’re overpaying in the first place. (Because of course they were.)
NUMBER OF THE DAY
The number of job openings in the United States fell to 10.8 million in January, compared to 11.2 million in December. This signals a very slight slowdown in the labor market, which is still running too hot for the Fed.
That number, which is part of the closely watched Job Vacancy and Labor Turnover Survey, was slightly higher than economists had expected.
The data came out just as Fed Chairman Jay Powell began his second day of Congress, underscoring the Fed’s view that interest rates will likely need to stay high longer to tame inflation.
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