Will food prices go down in 2023? Prices of everything from gasoline to cereal seem to be on a steep upward trajectory with no clear end in sight. The Russian invasion of Ukraine and Covid-19 outbreaks in China have put substantial pressure on prices for items Americans use every day. Many consumers are adjusting their budgets and dietary habits to adapt, but continue to wonder when things may return to normal.
In March 2022, the U.S. Department of Agriculture predicted “all food prices” will likely rise through much of 2022, something many consumers have already experienced first-hand or otherwise.
Global food prices have seen their largest jump in more than 40 years as the supply of wheat, flour and edible oils are constrained in international markets. Russia and Ukraine provide a substantial amount of the world’s stockpile of basic ingredients. While the conflict in eastern Europe continues, it’s difficult to definitively state how or when prices will ease.
Amid whispers that the Federal Reserve may pass a 75 basis-point interest rate hike in order to curb near-record levels of inflation, food prices are top of mind for many households. Reasonably so, as in last week’s Consumer Price Index report for May, Food jumped 10.1% from the year prior.
We need 75 basis points and we need the fed to dump bonds at 2x their current amount
— Jim Cramer (@jimcramer) June 14, 2022
Will Food Prices Go Down? Here Are Key Factors to Watch
- The single most important factor in food (and energy) prices is the Russian invasion of Ukraine. Both countries remain major suppliers of basic ingredients, so current sanctions against Russia and blockades on Ukrainian ports have disrupted food exports in profound ways. Russia and Ukraine make up 20% of the world wheat supply. Currently, wheat is at risk of rotting in Ukrainian warehouses as a consequence of the invasion.
- The Fed’s inflation reduction efforts will also play an important role in the price of food in America. The central bank has repeatedly stated lowering prices is a high priority. It has already taken steps like quantitative tightening — like selling off bonds on its balance sheet — as well as 0.75% interest rate hikes. Some investors and analysts, including fast-talking stock picker Jim Cramer, believe the Fed should be even more aggressive in its efforts against inflation.
- Finally, the federal government remains the last line of defense against rising food costs. Just last week, President Joe Biden commented on upcoming initiatives meant to lower costs at store shelves. This includes the appointment of a new Supply Chain Envoy in the form of General Steve Lyons, as well as pending deals with European partners to unlock 20 million tons of grain trapped in Ukraine. Biden also commented on legislation meant to crack down on foreign-owned shipping companies raising prices upwards of 1,000%. Should all of the President’s cost-lowering plans come to fruition, Americans can certainly expect relief at the supermarket come 2023.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.