Due to increasing competition as well as lower cost of commodities, the cost to shop for groceries has been decreasing throughout 2016. This “price deflation” is a rare phenomenon, but families are now actually paying less money for their food than they were in 2015.
Each and every month the Bureau of Labor Statistics (BLS) as well as the US Department of Agriculture (USDA) reports on the nation’s inflation rates. There are other reports compiled by state organizations as well as non-profits. Some of the other companies that have been tracking the recent decline in the cost of groceries include Wisconsin Farm Bureau’s Marketbasket and many others.
The items they track cover many different expenses that families need to pay, ranging inflation for housing, medical care, airplane tickets, TVs, and much more. One category that BLS as well as these other agencies also report on is food, and they even track specific items such as eggs, milk, canned groceries, fruits, and various other food groups.
Over the last 9 months of 2016, the month over month decreases have ranged from between -.3% to -2%. In fact, the decreases have been accelerating throughout the year, with the decrease in the cost of groceries from August just about at -2% according to the USDA. There are reports of eggs going down about 40% from last year, milk being about 20% cheaper, and many other individuals items are much cheaper than last year. Based on some of the underlying trends occurring in the economy, these decreases may continue for a while.
Impact to budgets from lower grocery prices
This means that if a family spent $500 per month on their groceries last year, during 2016 they are now spending anywhere from $450 to $460 on average for the exact same items. One the surface, it may not seem like a huge difference in savings. But if a family is now spending $10, $30, or even $50 less per month to feed their household, that money can be spent on other needs.
While it is impossible to quantify what is driving this decrease in grocery prices, one big reason is the increased competition. With companies such as Amazon, Aldi, Wal-Mart and many others building up their operations to focus on selling food, this is providing shoppers many other opportunities to save as well. For example, using the the example above, if a family save $50 per month on their groceries, maybe they can use that money to shop for other housing goods they need at a retailer such as Amazon.
Also, the monthly savings can be used to offset some of the other price increases that many Americans have been facing throughout 2016. As inflation still exists in our economy. The price of many other items that most people need to buy (such as prescription medications or health insurance) continue to increase at a fairly rapid clip. So it may be a good idea for families to use the money saved from the food line item of their budget to pay for those other bills. Or at the very least households should strongly consider saving that extra money for when the trend of falling grocery prices decreases.
Falling grocery prices is always great news for families, no matter their income level. With that being said, while the trend of reduced prices may continue for a while, it will change someday. Whether it is next month, in 2017, in 2018, or some other year, consumers should take advantage of the reduced prices they currently have to pay and save this extra money or use the money to pay down other financial obligations.