Economic Perspective: Why are Groceries Getting Cheaper?

Economist Mike Walden

Economist Mike Walden

MARY WALDEN:

“Today’s program asks, ‘Why groceries are getting cheaper?’ Mike more people seem to be smiling when they are shopping for food in grocery stores and supermarkets. Are they just in a good mood or is there something else going on?”

MIKE WALDEN:

“Well we hope they’re in a good mood. We hope people are always in a good mood, but there could be another reason. Maybe it is that the prices they’re seeing on things they’re buying in the grocery stores and supermarkets are going down. In fact, over the last year, if you look at prices in grocery stores and supermarkets, they are down on average about two percent, and we normally don’t see prices go down. We normally see them go up.”

“Now if you look at some specific food items: we see ground beef is down about 12 percent, milk is lower by about 11 percent and eggs are down by a whopping 40 percent. Now why? That’s the big question. Well I think a couple things have been working here. One is we’ve had very good harvests. We’ve had good harvests in our big midwestern states that are producing things like wheat and corn. We also have lower transportation costs due to lower gas costs.”

“And on the demand side there’s China. Of course China has been a big factor at everything economic. The buying of food products by China has really slowed down as their economy has slowed down. So I think it’s a combination here of supply factors and demand factors.”

“Now I want to emphasize that we’re talking about food that you buy in grocery stores and supermarkets, not food in restaurants. In fact, if you look at restaurant prices they’re up about 3 percent. That’s actually causing some people to reverse a trend that we’ve seen over the last couple of decades of people spending more of their food dollar out in restaurants rather than home. Some people are reversing that. We’re beginning to see a slight increase in the percent of the food dollars spent on eating at home. We’ll have to see if that trend continues.”

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