Chicken wings for $ 34? Delayed inflation raises food prices – Press Telegram

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Amy Yee and Tarsus Velaz Ribeira | Bloomberg

With a gallon of milk rising about 25 percent since the pandemic and bacon retail sales 35 percent higher, it’s hard to imagine how food inflation in the U.S. could worsen. But data show that even higher prices are on the horizon.

Consumers have in fact been shut off from the full burden of the growing costs faced by manufacturers, distributors and small businesses such as restaurants. But they can only hold back for a long time.

Take the case of Jeff Hood, who co-founded three restaurants in Jackson, Mississippi. About 18 months ago, a 40-pound box of chicken wings cost him about $ 85. Now it can reach about $ 150. Over the past five months, spending on butter and flour has almost doubled, he said. But it’s not just ingredient prices that are rising. He also pays more for work and services. Even the company that maintains its air conditioners took a $ 40 fuel fee per visit. To cope, he raised menu prices.

Ordering 15-piece chicken wings, a signature dish at his Sal and Mookie’s pizzeria, cost $ 13.95 before Covid hit. Now the cost of the wings can vary so much that they are labeled as the “market price” as some restaurants do with lobsters. At its peak, the menu price could be around $ 27.95 – but that’s almost a margin – and Hood estimates that the “real price” is approaching about $ 34. He is trying to decide whether to continue to raise prices or to exclude wings from the menu.

“We’ve never, ever seen anything like what we see now,” said Hood, who opened his restaurants nearly 30 years ago.

The difference between the prices that producers receive for their goods and the prices paid by ordinary buyers at the box office can be seen by comparing producer price indices and consumer prices.

The CPI, a benchmark for measuring inflation, cited in headlines and by economists, is growing. Consumer food prices rose 9.4% in April from a year earlier, the biggest increase since 1981, government data this month showed. Chicken meat, fresh seafood and baby food have grown to a record high.

But many food costs, measured in the CPI, are accelerating faster than the CPI. In April, average wholesale food prices in the index jumped 18% from a year earlier, according to government data released on May 12. It was the biggest increase in 12 months in almost five decades. Eggs grew by 220%, butter – by 51%, fats and oils – by 41%, and flour – by 40%, according to the National Association of Restaurants.

Evidence suggests that delayed inflation in production and distribution will continue to affect consumer prices.

“Businesses will do their best to cut profits and not pass on higher costs from manufacturers if they see the likelihood that prices will change quickly,” said Arlan Suderman, chief commodities economist at financial services group StoneX. “However, they will eventually have to endure these price increases.”

Changes in food prices in the CPI basket lag behind the CPI by a month or two, so the recent increase for producers is likely to lead to significant price increases that consumers will see in the next few months, “said Stephen Stanley, chief economist. companies. Amherst Pierpont Securities, the email said.

Prices per gallon of milk have risen by about 25% since the pandemic, and some specialty grocery stores, such as Whole Foods, are charging even more as problems with inflation and supply chains squeeze companies. (Dustin Franz / The New York Times)

Meanwhile, pressure on food production continues to increase, suggesting that PPIs may continue to rise. Farmers face many problems, including a lack of fertilizer, drought and adverse weather, and an outbreak of bird flu in the U.S. that has killed nearly 10% of egg-laying plants in the country. In addition, the war in Ukraine and its impact on fertilizer supplies and fuel markets only exacerbate the problem.

All of these factors are likely to lead to lower yields, animal feed, meat and other foods – and will contribute to higher prices.

Already in April, the U.S. Department of Agriculture raised its forecast for producer price inflation for most basic foodstuffs by 2022. It is expected that this year oil and wheat on farms will grow by about 40% compared to December forecasts of price growth of as much as 5% and 4% respectively.

The prospect of rising food prices reflects a broader trend for the U.S. economy. The new era of high inflation is likely to be stubbornly above the range of 1.5% to 2% to which American consumers, businesses and investors are accustomed to a pandemic surge.

“We can expect high inflation to be more persistent,” said Fernando Martin, assistant vice president of the Federal Reserve Bank of St. Louis.

The situation also underscores why President Joe Biden has said Democrats must redouble their efforts to overcome voter anger over inflation. Just last week, Biden called inflation “unacceptably high,” but said the responsibility for tackling it lies with the U.S. Federal Reserve.

As for food prices, the impact of delayed inflation will also come from the middle of the supply chain: distributors who compile and deliver food to restaurants and other catering groups.

Independent distribution companies are seeing higher costs for everything from fuel and equipment to labor, said Mark Allen, chief executive of the International Association of Catering Distributors. According to him, inflation among distributors is observed in mid-adolescence and more.

“It’s higher than what the government publishes,” Allen said, adding that more distributors are likely to raise their rates as their margins are just 1% to 2%.

To cope with the rapid costs, restaurants have already shifted some costs. According to the National Restaurant Association, average menu prices in April rose 7.2% from a year earlier, the biggest increase in 12 months since 1981. Visitors also saw that portions were declining.

However, margins are shrinking sharply. And things could get worse as many large restaurant chains and food retailers sign long-term supply contracts. Since agreements signed six or 12 months ago are subject to renewal, they are likely to be set with higher prices.

Even fast food giant Wendy’s Co. recently raised its commodity inflation forecast for the year, citing rising spending on favorites such as Baconator and Dave’s Double.

Small and independent restaurants tend to have far fewer options for buffering higher costs.

“There are basic goods that have jumped sharply in price pertaining to each dish,” said James Malias, a partner at Manhattan restaurant Amali. The price of butter, butter and beef has risen sharply, he said. Disposable gloves are about five times more expensive than before the pandemic.

There is always a risk that continued growth in consumer prices will lead to the destruction of demand. This is one of the reasons why retailers and food producers have so far been “sensitive to too rapid price increases,” said Brian Choi, CEO of the Institute of Nutrition, which provides research, news and industry data.

“But eventually they will need to raise prices,” Choi said. “Inflation is still ahead.”

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