You may have noticed in the meat aisle, or when picking up a carton of eggs, or when hearing the cashier reveal the surprisingly high total for your weekly groceries, food prices have been on the rise.
On some level, this isn't surprising. Food price increases happen naturally. Once upon a time, chocolate bars cost a few cents and you could get a vending machine drink for a single coin. The difference between food prices in past decades and now is largely a product of inflation of the U.S. dollar, which steadily drives up prices. Usually, this happens at a barely noticeable rate that becomes obvious only when we view food price differences over many years or decades.
This year, though, things are different—as you've probably noticed.
According to the Bureau of Labor Statistics, food prices are up 5.3 percent over the past year. As of early fall, beef and pork prices were projected by the U.S. Department of Agriculture to rise as much as 7.5 percent for 2021, with seafood prices expected to rise by 5 percent, and eggs by 4 percent.
How could food prices suddenly start increasing so quickly? Shang-Jin Wei, professor of finance and economics at Columbia University, points to several overlapping reasons.
Supply and Demand Changes Since March 2020
Going into year three of COVID-19 pandemic, the outbreak continues to affect the flow of products and food. "There are pandemic-related reasons that cause full production in various parts of the world to be lower than would otherwise be the case," Wei says.
The start of the pandemic in March 2020 disrupted local and global production, setting off supply chain issues. These have touched many different areas, from car manufacturing and sales, to the availability of medical supplies. These disruptions have also touched food supply chains. You might remember the COVID-19 scares that slowed meatpacking plants in 2020, making prices spike (and threatening workers).
Across the country, food supply chain disruptions caused by the pandemic have contributed to the increase in food prices. Wei says that that there are labor shortages along several links of the food supply chain, including production, point-of-sale staffing, and even delivery.
Central Banking and the Big Forces That Guide Money
Central banks are entities that have control over the money of the countries where they operate. When these banks act, their actions may have an effect on inflation. Inflation increases food prices.
In the U.S., the Federal Reserve slows or speeds inflation of the U.S. dollar when it pursues its various strategies to shape the economy. Lately, Wei says, these policies have been increasing inflation. "Years and years of loose monetary policy," he says, are "currently coming back to bite us" in the case of higher prices.
Loose monetary policy causing inflation and higher prices is something that happens with food—and more. Wei points to other essentials that have seen price hikes, like gas. Moreover, we might be seeing even higher prices down the road, Wei says, as he has noticed major increases in producer and factory-to-factory prices. These pre-consumer price increases, he believes, will be passed on to consumers.
The China Tariff
A few years ago, Wei notes, the U.S. increased tariffs on goods imported from China "dramatically." Wei is also a professor of Chinese business and economy. He believes that these high Chinese tariffs have a direct impact on food prices: They raise them.
"These price increases are passed on to consumers, essentially," he says. "A tariff on imports essentially is a tax on consumer products."
Why can't we just import goods from elsewhere, if this set of tariffs is making things harder for U.S. consumers? It isn't that simple, Wei says. Indeed, the U.S. imports several billion dollars in food from China every year.
Will Food Prices Keep Increasing?
Wei believes food prices will keep rising—but that the factors outlined above can be addressed. He believes tariffs could be softened. He believes that central banks "have the means to reverse inflation." Without change, he says, "the food price increases we are seeing now will continue."