Food inflation’s ‘remarkably small’ bite and consumer perception

Americans are spending a greater share of their income on food than they did before the pandemic, but the increase is less dramatic than some commentators are making it appear in an election year, said two think tank analysts on Wednesday. Food is the second-largest consumer expense, accounting for about 13.4¢ of the consumer dollar.

During the inflationary surge that followed the pandemic, the wealthiest U.S. households spent an additional 0.5 percentage points of their income on food, and the lowest-income households spent an additional 1.3 percentage points. In 2022, the highest-income households spent 11.2% of their income on food and the lowest-income households spent 15.6%. The increases punctuated three decades during which Americans spent a diminishing share of their money on food.

“These shifts seem remarkably small, given the concerns about perceived substantial increases in the costs of feeding families because of higher food prices,” wrote analysts Vincent Smith and Joe Glauber in an American Enterprise Institute quarterly newsletter. “They suggest that when changes in incomes and the prices of other goods and services are taken into account, food inflation has had much smaller impacts on food purchasing decisions and households’ economic well-being than some commenters claim.”

As an example, they cited a post-pandemic increase in household spending on higher-priced “food away from home,” a category that includes salad bars, carryout food, and meals at sit-down restaurants. Some 55.7% of food expenditures were for food away from home in 2023, compared with 48.3% in 2021 and 53 percent in 2019. The increase “seems inconsistent with the view that food price inflation has dramatically affected many households’ well-being,” they said.

All the same, higher food prices are a common irritant in public opinion polls, although food price inflation, at an annualized rate of 2.3%, is below the current overall U.S. inflation rate of 2.4%. Food inflation peaked at 11.4% in August 2022 and has been below 3% since November 2023.

“One possible explanation is that for most of the second half of 2022, year-on-year monthly food inflation rates were exceptionally high, the highest levels anyone had experienced since the late 1970s. The duration of relatively high food inflation rates during the pandemic was also the longest since the late 1980s,” said Smith and Glauber.

Participants in a Purdue University survey, conducted monthly, routinely say the food inflation rate is much higher than it actually is. In the latest survey, respondents estimated that food prices rose 5.6% in the past year and said they expect food inflation of 2.9% in the coming year.