Grocery Inflation Moderating, But Still Ticking Up

Inflation may have worn out its welcome, but it’s sticking around at low levels. The latest Consumer Price Index data from the U.S. Bureau of Labor Statistics (BLS) shows that overall inflation edged up 0.4% and food-at-home prices rose 0.1% in September.

The grocery price hike was scant and lower than the 0.3% uptick in July and 0.2% increase in August, but it does keep inflation a top-of-mind issue for CPGs and grocers heading into the all-important holiday selling season.

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Drilling down into the data, BLS reported another seesaw month within food retailing. Three of the six major grocery indexes rose, including meats, poultry, fish and eggs (+0.5%), dairy and related products (0.1%) and “other” food at home (+0.3%). 

There was relief in other categories, though. Prices for cereals and bakery products dropped for the first time since June 2021, declining 0.4% last month. Fruits and vegetables and nonalcoholic beverages held steady, unchanged from August to September.

Andy Harig, VP, tax, trade, sustainability and policy development at FMI - The Food Industry Association, said that the general deceleration of inflation is welcome, even as some areas remain elevated. “The September CPI report demonstrates that food-at-home inflation continues to stabilize and provide shoppers with a more consistent and predictable shopping experience. This continued leveling off – and for certain commodities lower inflation levels – provides reason for consumers to be optimistic,” he said.

As grocers try to keep the momentum that’s built up over the past years in the food-at-home sector, they can note that food prices at restaurants continue to climb. The CPI for food away from home increased 0.4% last month. Foodservice inflation is up 6% on a year-over-year basis, compared to 2.4% in grocery.

Meanwhile, apparel prices decreased last month by 0.8%, a trend with implications for retailers that carry clothing. Relevant for retailers with fuel stations, the gas price increase cooled to a 2.1% lift after rising 10.6% in August, although that may change this month with the outbreak of war in the Middle East.

Matt Pavich, senior director of strategy and innovation at pricing and promotions optimization firm Revionics, said that collaboration between suppliers and retailers is crucial as the CPI hovers above normal levels. "Price perception is now king and retailers know this. This doesn't have to be a winner/loser situation between retailers and vendors though as the most sophisticated pricing solutions can find that exact balance that creates a win-win-win solution for consumers. retailers and vendors alike,” he said, adding, “Paying more attention to promotions is also critical."

Pavich also underscored the importance of a relevant loyalty program. “Oftentimes in the retail world there is confusion with the idea of loyalty. Like, ‘Hey, there's this card...And if customers give me their phone number and we track them, they're a loyal customer, right? But that’s part of the ‘how’ not the ‘why’ to achieving loyalty. The reality is loyalty will come from value and convenience. If you can offer value and convenience, people will stay with you," he pointed out.