Why Is Food Still So Expensive?

No single factor can explain why food is so much more expensive now than before the pandemic. Food prices — which are up 26% since the start of 2020 — remain high because of the combined impact of:

• Higher production, labor and fuel costs that have rippled through every aspect of the food system.

• Supply chain disruptions caused by global events, severe weather and disease that have affected many essential crops and livestock.

• Food companies that have sought to maintain — or increase — profitability while facing these volatile conditions.

Some of these factors affect food production across the board while others affect only some products. Here’s a deeper look at why food prices are high.

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Operating costs

From farm to supermarket, everyone has people to pay, equipment or raw materials to buy and vehicles to fuel. And those operating costs have become more expensive over the past few years. That adds to the cost of the food you purchase at the store in more than one way.

The simplest way is that the higher costs get passed along. For example, when gas prices rise, the cost of food tends to rise. The price of a gallon of diesel — which fuels farm equipment as well as trucks delivering inventory to stores — has increased 22% since the start of 2020, according to data from the U.S. Energy Information Administration.

A more complicated way higher operating costs lead to higher prices at the grocery store can be illustrated with one staple that’s stubbornly expensive right now: Beef. Years of drought, high grain prices and rising interest rates made cattle farming so expensive that many U.S. farmers reduced the size of their herds to cut costs — and some got out of the business altogether. Now, the U.S. cattle inventory is the smallest it’s been since 1951. That huge drop in supply has pushed prices for ground beef and sirloin steak to all-time highs.

Supply-chain disruptions

Sudden, sometimes unavoidable events can create supply shocks that drive up food prices. The sources and intensity of those supply shocks vary. Here are just a few examples of events that recently impacted food supplies and sent prices soaring.

The pandemic created a sudden surge in demand for groceries as lockdowns forced people to stay home. At the same time, food production slowed as COVID-19 spread and workplaces enacted new protocols meant to mitigate health risks to employees. You might remember items like yeast or meat became almost impossible to find. Prices for popular items soared as grocery stores and their suppliers struggled to keep up with consumers.

The war in Ukraine continues to affect that country’s food exports. As “the breadbasket of Europe,” Ukraine historically accounted for 9% of the global wheat market and 12% of the corn market, according to the USDA’s Foreign Agricultural Service.

A highly contagious and fatal bird flu first appeared in U.S. poultry at the start of 2022 and has wreaked havoc on the national population of egg-laying hens since then. Consequently, egg prices peaked at $4.82 per dozen in January 2023. While they’ve receded from that level, they’re still about 39% higher than before the first outbreak.

Corporate profits

Despite the headwinds described above, grocery stores’ profit margins increased in recent years, according to a March 2024 report by the Federal Trade Commission. The FTC report notes that food and beverage retailers saw their revenues outpace their costs by more than 6% in 2021. That was a new high for that particular profit measure until 2023, when it reached 7%.

Food manufacturers have relied on price hikes and other tactics to maintain profitability, as well. Take chocolate for example, which has become even more expensive to make this year because of record-high cocoa prices. Companies saw shoppers become more sensitive to chocolate prices as they went up. While shoppers spent more money on chocolate in each of the past two years, they actually cut back on the quantities they bought, according to NielsenIQ data provided to NerdWallet in March.

When that happens, companies know they can’t keep raising prices without further impacting their sales volume. Instead, they make other product changes, like shrinking packages, giving you less product for the same price. That maneuver is known by detractors as shrinkflation.

Members of Congress and the Biden administration have taken turns slamming food companies for these tactics. President Joe Biden called out “shrinkflation” during his State of the Union speech in March. And Sen. Elizabeth Warren blamed high grocery prices on “corporate price gouging" during a Senate subcommittee hearing on high food prices in May.

FTC Chair Lina Khan has said she wants the commission to launch an inquiry into big grocery chains’ pricing practices.

During an Aug. 1 meeting of the Strike Force on Unfair and Illegal Pricing, an interagency committee targeting corporate pricing in numerous industries, Khan said the FTC wants to understand why prices remain high even as costs have declined and supply chains have improved. “We want to make sure that major businesses are not exploiting their power to inflate prices for American families at the grocery store.”

Will food prices go down in 2024?

In July, food prices — which includes both food at home (groceries) and restaurant purchases — increased 0.2% from the previous month, according to the consumer price index report released Aug. 14 from the Bureau of Labor Statistics. The CPI, which serves as a proxy for inflation, measures changes in average costs of items in a given period.

The report shows food prices are 2.2% higher than they were 12 months ago. By comparison, prices rose 4.9% over the previous one-year period in 2023.

Here are the broad strokes on food prices found in the latest report:

Groceries: The index for food at home is 1.1% higher year-over-year. From June to July, grocery costs increased 0.1%.

Dining out: The index for food away from home is 4.1% higher year-over-year. And restaurant prices rose 0.2% from June to July. Specifically:

• Limited service meals (takeout only) cost 0.3% more in July and 4.3% more compared to the same time last year.

• Full-service meals (at sit-down restaurants) cost 0.1% more in July and 3.8% more year-over-year.

How inflation is hitting your grocery bill

Though grocery prices ticked up slightly in June, they continue to be a bright spot in the CPI. On the whole, they held steady for three out of the past four months. In April, they declined slightly. That’s having a direct impact on people’s wallets: In May, several major retailers like Target and Walgreens touted summer discounts on pantry staples, seasonal favorites and other items.

But grocery prices don’t move uniformly. While they might be falling in one category or food group, they’re likely rising in another. This month was no different.

How are food prices tracked?

Food prices are tracked by several federal agencies, including the Bureau of Labor Statistics and the Bureau of Economic analysis.

The Bureau of Labor Statistics tracks the CPI, which measures the change in average price that consumers pay for goods and services, including food. So the CPI is also a measure of inflation. 

In the CPI, the cost of food is of high relative importance to the overall index, compared to the other tracked goods and services. Food costs make up 13.4% of the index, to be exact. Its importance is second only to shelter (34.73%). But food prices, like energy, also tend to be more volatile, and for that reason it is usually left out of the “core inflation” version of the index.

The Bureau of Economic Analysis measures the personal consumption expenditures price index. The PCE tracks how much consumers spend on goods and services, as well as how consumers change spending habits in response to price shifts. Food is considered a non-durable good in its analysis. Core PCE — the Federal Reserve’s preferred measure of inflation — also excludes food and energy.