Food is getting more expensive around the world due to increases in demand and scarcity because of transportation and supply chain issues.
And the timing couldn’t be worse, coming just as government stimulus fades and consumer savings start to run dry.
Now, the post-pandemic rebound is doing the same thing to prices that natural disasters and civil wars did a decade ago, which demonstrates the magnitude of the problem.
COVID-driven demand is having a major impact on food inflation, as more people choose to cook and eat at home rather than go to restaurants.
Last fall, retail sales data indicated that spending on food and beverages was one of the main drivers of price increases. And while December’s data showed that spending may be decreasing, food and beverage retail sales are still up 9.3% year-over-year.
Emerging markets like Mexico and Columbia are feeling the pinch, as fresh food prices drive up inflation and push their central banks to raise rates faster than G-10 countries to combat inflation.
More locally, the impact can be seen in earnings for the supermarket chain Albertsons Cos., which is having to raise wages and boost hiring to account for rising sales of fresh products.
The question now is how much can prices rise before it discourages spending? It’s a number that’s hard to pin down, Energy, for example, also is a major inflation driver, and industry veterans believe demand will start to wane if oil hits $100 a barrel. Finding the same level for food, is difficult given the effects of fiscal stimulus and savings on spending and demand. So the market is just left to wait and see how this all shakes out.