By Mike Walden
Two of the most important purchases by consumers are food and gas. We obviously need food to sustain ourselves, and most of us enjoy the experience of eating. Because we are a mobile society, with gas-powered vehicles being used by many for transportation, gasoline is important to our daily activities: going to work, school, shopping and a variety of other destinations.
The federal government’s data show that food and gas spending combined account for 13% of the average household’s spending. However, the share is 40% for low-income households. Furthermore, these numbers understate the true impact, especially of spending on gas, because gasoline is a key input into many other products and services we buy.
The conclusion is, consumers should — and indeed, do — watch food prices and gas prices because those two prices are key to our economic well-being. When food and gas prices rise faster than our incomes, then our standard of living declines. But when food and gas prices fall, most of us see our standard of living rise. The exceptions are those who make their living producing and selling gas and food, such as petroleum companies and farmers.
Hence, we smile and have an added zip in our steps when we see gas and food prices go down, whereas we frown and become more frugal when gas and food prices go up.
The problem today is we don’t know whether to smile or frown. The reason is that gas and food prices have been moving in opposite directions. Recently the gas price per gallon has trended down, and it is now 15% lower than two years ago. In contrast, food prices have been trending higher, now being 3% higher than a year ago and 26% higher than in 2020.
Today’s column addresses several questions about this situation. Why are gas prices falling while food prices are rising? Shouldn’t all prices move in the same direction? Will the trends we’re seeing today of lower gas prices and higher food prices continue? Finally, and perhaps most importantly, what can consumers do about today’s situation, especially with higher food prices?
The fact that gas prices have been dropping and food prices have been climbing shows that each commodity has its own economic situation, usually based on the commodity’s supply and demand. “Supply” means how much is available for consumers to buy, and “demand” is a measure of how much consumers want to buy at a given price.
The major reason gas prices are falling is that oil supplies — the source of gasoline — have been increasing. U.S. oil production is now at an all-time high, and production from the dominant oil-producing countries of the world — OPEC — is up 5% this year. More plentiful oil means more plentiful gasoline and downward pressure on gas prices.
Understanding food prices is more complicated because many different foods are involved, and each often has a unique economic situation. During the most recent annual period, coffee, fresh vegetables and meat have had the largest increases in prices. Coffee prices are up 20%, some fresh vegetable prices have risen 38%, and meat prices for beef and veal are 15% more expensive over the past year.
Tariffs have contributed to higher coffee and fresh vegetable prices because a significant portion of those commodities are imported. And remember, tariffs are paid by the domestic importing company, not by the foreign exporting company. We are now seeing many U.S. companies passing the cost of the tariffs on to consumers.
Meat prices, especially for beef, have been adversely impacted by drought and smaller beef cattle herds.
So, what’s the outlook? Will the good news continue for gasoline prices, and could the bad news shift to good news for food prices?
Right now, energy experts see the good news continuing for gas prices, with the per-gallon price predicted to average $2.90 in 2026. However, oil prices are influenced by international politics. We saw this recently when oil prices jumped immediately after U.S. sanctions were placed on Russian oil. The sanctions are intended to reduce sales of Russian oil and hurt the financial ability of Russia to continue the war with Ukraine. Since Russia is a major world oil producer, taking Russian oil off the international market will reduce world oil supplies and put upward pressure on oil and gasoline prices. So, watch international events.
Weather and disease affecting animals have impacts on prices. But because weather and disease are often not predictable and controllable, there’s less certainty about food price forecasts. Still, keeping that limitation in mind, experts are now predicting a 2.3% increase in food prices in 2026. This is lower than 2025’s increase and also less than the 10-year average for annual food price inflation. If tariffs are eventually reduced or eliminated, food price inflation could be even lower.
If these positive forecasts are wrong and both gas and food price inflation are higher, then what can you do? The economic answer is to conserve and substitute. First, try to use less of the items that now cost more. Second, switch to suitable, less-costly substitutes for the item that is now more expensive. For example, if beef is too expensive, see if protein alternatives like fish and pork are less costly and acceptable for you.
Prices rise and fall for most products and services we use. But because the prices don’t always move in tandem — as recently with gas and food — understanding price changes can be confusing. If I’ve done my job of explaining recent price changes, then maybe you can make sense of why some prices go up and others go down. But, you decide.
Mike Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.
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