Lower Oil Prices May Temper 2015 Food Price Inflation

Feb 18, 2015

Oil prices began declining in the last quarter of 2014, continuing their descent to just above $45 a barrel in January 2015 from $105 in July 2014. Barrel prices have not dipped this low since the end of the Great Recession in 2009. Through their impact on transportation costs and the cost of operating farm machinery, oil prices play a role in retail food prices, and declining oil prices could ease grocery store inflation.

However, the effect is likely to be modest because processing costs and retailing overhead are larger cost components of retail food prices. Prices of foods requiring little processing, such as fresh fruits and vegetables, are more likely to be affected by lower oil prices than processed foods such as cereals and bakery products.

As oil prices fell in 2009, fresh produce prices decreased 4.8 percent, while prices for cereals and bakery products rose 3.2 percent. Despite lower oil prices, ERS currently predicts overall food prices to rise between 2 and 3 percent in 2015, closely in line with 2014 food price inflation.

Source:usda.gov

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