What Grocery Prices Tell You About the Economy, According to Experts

Portrait Of Shocked Young Housewife Checking Grocery Bills In Kitchen After Shopping

You’ve likely seen your grocery bill go up significantly in the last few years as inflation continues to impact the prices of everyday goods. While the Fed has raised rates in an attempt to cool down the economy, you’re still likely feeling the impact of inflation every time you go shopping for food since grocery prices have increased 25% in the last four years, as reported by The Washington Post. To make matters worse, you may see confusing headlines about inflation slowing down even though you’re still spending more than ever on eating and other basics.

We will examine what grocery prices tell you about the economy.

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What Do Grocery Prices Indicate About the Economy?

“When we look at day-to-day expenses like grocery prices, they can give us a glimpse into the state of the economy,” said Dre Villeroy, CEO of Beyorch, an asset management and investment fiduciary firm. “Grocery prices often move up or down based on changes in supply and demand, as well as broader economic trends.”

“When it comes to grocery prices, specifically looking at typical household necessities like eggs and breads, the price significantly reflects the rate of inflation,” said Aaron Cirksena, founder and CEO of MDRN Capital.

“Prices for bread are 138.83% higher in 2024 than in 1997 which is a $6.94 difference,” Cirksena said. “When we see everyday expenses like food and gas increasing, we know it’s an indication of inflation.”

Those we spoke with agree that grocery prices indicate the overall economy since broader macro issues impact them. Experts believe that grocery prices have stayed high due to a combination of pandemic-related labor shortages, ongoing supply chain issues, natural problems with crops and shifts in consumer demand. As consumers anxiously wait for grocery prices to return to pre-pandemic levels, many experts don’t see this happening and policymakers don’t appear to have a resolution.

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How About Other Expenses?

“Beyond groceries, other common expenses like fuel, utilities and rent can also provide clues about economic trends,” Villeroy said. “For instance, higher fuel costs can affect transportation expenses and the prices of goods and services across the board. Similarly, increases in utilities and rent can put a strain on household budgets, potentially slowing down consumer spending and leading to tighter margins for businesses.”

These everyday expenses impact the overall economy since they’re more connected than we may realize. As fuel costs rise, consumers may take fewer road trips or they may limit overall spending as they try to work within their new budgetary constraints.

Every Expense Matters 

Every expense matters because when consumers have less disposable income, they have less money to spend on certain luxury items. When consumers adjust their spending, this means that companies make less money and report lower earnings.

“These shifts in everyday costs can impact consumer confidence and market stability, influencing everything from investment strategies to employment rates,” Villeroy said.

When companies report lower revenue, they may have to lay off employees, which impacts consumer spending. This creates a challenging economic cycle that’s difficult to break out of.

What can you do? Villeroy suggested the following:

“By keeping track of these trends, you can make more informed choices about your financial planning and investment strategies, preparing yourself for potential changes in our economic environment. Being prepared can help you navigate uncertain times and keep your finances on track.”

How Does This Compare To What The Government Says?

What do grocery prices say about the economy compared to what the government announces? The most recent Consumer Price Index (CPI) data released by the Bureau of Labor Statistics stated that inflation was at 3.5% for March, with food up 2.2% annually, a 0.1% increase from February. The report also stated that three of the six major grocery store group indexes decreased over the month.

While this may feel like positive news, the reality is that grocery prices have gone up so much over the last few years that people are still feeling the pinch. Many consumers may still be recovering from the previous price increases that forced them to dip into savings or rely on credit.

Overall Prices Impact Inflation 

“The reported inflation data is an aggregate of many goods and services, which makes the inflation rate feel a bit lower than it actually is,” Cirksena said.

Since the CPI data is based on a basket of goods and services, we may not get the entire picture of inflation figures since some items could bring the overall number down.

Grocery Prices Have Gone Up Significantly

“Since 2021, grocery prices have risen by more than other inflationary measures,” Cirksena said.

Even though overall inflation has cooled, it doesn’t mean that food prices have decreased or stopped increasing. Everyone feels the pain differently as well have unique shopping and eating patterns.

According to CPI inflation data, grocery prices jumped 12% in 2022, the largest leap since 1978. American families are spending, on average, 25% more on their groceries than they were before the pandemic started in 2020.

Consumers Are Getting Less

“Additionally, consumers are now dealing with shrinkflation,” Cirksena said. “That pound of bacon that was $3.99 4 years ago is now $4.99, and now it’s only 12 oz.”

The final point about grocery prices is the role of shrinkflation, as people may be getting less than they used to. This could lead to increased consumption or a shift in eating habits.

“If prices are rising, it might suggest that production costs are up, or there are issues with the supply chain, both of which can point to inflationary pressures,” Cirksena said. “When basic goods become more expensive, it can affect how much disposable income people have left to spend on other items.”

Grocery prices tell us more about the economy than we may realize. Understanding this is important when creating or adjusting a budget so that we can plan accordingly.

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