If inflation slowed down in 2023, why is my grocery bill so high?
If inflation slowed down in 2023, why is my grocery bill so high?
2023 was officially a very good year for the U.S. economy: unemployment stayed near record lows, the markets were strong, and inflation came under control. So with all this good news, why does looking at the grocery bill still feel a little like getting poked with a cattle prod?
The reason is that inflation coming down just means prices rose more slowly last year… they didn’t actually come down. And even the prices that did come down (looking at you, eggs!) were far from landing back at pre-pandemic levels.
Take beef. Last year, beef prices rose about 8%, more than the price of any other meat, according to the government tracked Consumer Price Index. But beef hardly stands alone.
Where’s the Beef?
It was a chilly morning at the Treasure Valley Livestock Auction in Caldwell, Idaho. In a compact indoor arena, about 60 ranchers sat on metal bleachers around a pen, looking at their phones, chatting and drinking coffee. Every few minutes, a handful of cows were ushered into the pen. The auctioneer, Zack Zumstein, a young guy in a black cowboy hat, started the bidding.
“A dollar seventy five, a dollar 80…” the prices climbed quickly. Zumstein pointed to different parts of the arena, jumping a little in the booth, and the bids kept rising.
“Two-fifty… two-fifty….” Final bid: $2.50 a pound. That is a very high price. “These are record calf prices that we’ve been having this year,” Zumstein told me. He’s been coming to this auction house since he was a kid with his grandparents and his parents. He studied economics and owns cattle of his own: cattle prices are in his blood. He said he’s never seen a cattle market like this. “It’s great and I hope it stays this way,” he said.
Supply And Demand
Beef is fetching record prices and that’s great for ranchers, maybe not so great for burger lovers. The culprit pushing prices up? Supply and demand. The supply of cows is low. So low, Zumstein says it can actually be hard to source cattle for the auctions. “I have so many guys right now that are looking to buy cows,” he said. “And this year, I can’t find cows for these guys.”
The number of beef cattle in the US is the lowest it’s been in years. Part of this dates back to the pandemic, when safety issues at meat packing plants and supply chain snags meant ranchers couldn’t sell their cows. At the same time, the cost of the hay to feed the cattle went through the roof. “If you had a cow that came in and looked at you kind of crazy in the pen, you were getting rid of her because you couldn’t afford to feed her,” Zumstein said. The result: Herds got a lot smaller.
When supply chains started to normalize and demand for beef spiked, ranchers started growing their herds again, but it takes years before a cow is old enough to sell for beef, so increasing the supply of beef takes time.
Hardcore Consumers
In the meantime, Zumstein said the high prices have been great for ranchers and so far, the beef eaters of America seem undaunted. “Beef consumers are pretty hardcore consumers,” said Bill Lapp, food industry consultant at Advanced Economic Solutions. Lapp said demand for beef is up since the pandemic began in spite of the fact that beef prices rose more than any other meat last year.
“Consumers have pretty inelastic demand for beef,” he said. Inelastic demand is economist speak for: ‘People don’t care, they want their beef.’ But Lapp thinks something else is causing this ‘inelasticity.’ He pointed out, if you step back a bit, beef prices don’t actually look so beefy.
Everything in the grocery store has its own version of beef’s COVID journey and Lapp said the end is the same: Prices are up. Since February of 2020, just before the pandemic, beef has gotten about 30% more expensive. That’s a major increase, but it’s not that different from the other products in the meat aisle.
The Meat Price Bowl
The price of chicken, which didn’t increase at all last year, is still 45% more expensive than it was pre-pandemic. Pork chops, whose price barely budged last year, are still 27% more expensive than they were in early 2020. And eggs, despite being the MVP of price drops in 2023 (prices down more than 22%) saw the biggest jump of all. A dozen eggs are nearly 50% more expensive than they were pre-pandemic.
Eggs, of course, are an exceptional case: There was an avian flu that killed millions of birds, but Lapp points out, major price jumps have hit every aisle in the grocery store. Food prices overall have risen about 25% since COVID hit.
Lapp has been working in the food industry since the 1980s. He said he’s never seen anything like this. “This is very different. It’s a much more dramatic, much more sustained increase in costs.”
Where Does This Leave Me?
This is why, in spite of the really positive inflation news we got last year, going to the grocery store can still feel a little bit like getting poked with a cattle prod. Inflation did come down in 2023, but that just means prices rose more slowly. And even the prices that dipped slightly have not come down anywhere near pre-pandemic levels.
Of course, prices rising (at least a little bit) is seen as a sign of a healthy economy. And with the economy looking pretty strong so far this year, said Lapp, we can probably expect to keep getting a little less beef for our buck.
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