Food prices, inflation, and consumers
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EmailWe recently looked at how FAH vs. FAFH price changes affect short- and long-term inflation expectations, and how the resulting inflation expectations influence consumer attitudes.
Food prices and inflation are on the minds of many U.S. consumers. We know that when consumers are expecting or anticipating inflation, it shapes economic behavior. Food prices disproportionately influence these expectations for a few reasons.
Food-at-home (FAH) demand is less responsive to consumers’ purchasing power, but prices on food-away-from-home (FAFH) signal an immediate strain on disposable income.
We recently looked at how FAH vs. FAFH price changes affect short- and long-term inflation expectations, and how the resulting inflation expectations influence consumer attitudes.
We worked with the following hypothesis:
- consumers who regularly experience higher food prices have a stronger and lasting impact on their expectation for inflation, compared to those who experience higher food prices less frequently
- FAFH causes a larger but less persistent influence on inflation expectations than FAH
- moderate inflation expectations (higher food pricing) are associated with stronger consumer attitudes or sentiment
Looking at data from 1982 to 2024, we tracked prices for food, energy, FAH, and FAFH for the effect of a 1% increase in the price index on 1-year inflation expectations. Food prices are pivotal in shaping inflation expectations and consumer sentiment.
Policy Implications
Our work uncovered three key areas for policy consideration.
1. Target FAH price stability
- Persistent FAH effects on consumer behavior require long-term stabilization, g., supply chain interventions.
- Improved transparency on food-price communications helps anchor consumer expectations.
2. Manage FAFH price volatility
- Consider short-term assistance or incentives for food service during price
3. Reinforce Moderate Inflation Targets
- Expectations of 0-2% inflation correlate with consumer confidence and central banks should continue to emphasize this inflation target.
