Why you’re still paying higher prices for your groceries

Shoppers are stuck paying elevated prices at the supermarket even though the supply restrictions that drove them up have dissipated, exclusive Nielsen data shows.

This “up like a rocket, down like a feather” grocery pricing phenomenon is slamming American families’ budgets at the same time they’re battling historic joblessness and the disappearances of federal unemployment benefits.

When coronavirus shutdowns hit, Nick DeKryger, a second-generation pig farmer in Demotte, Indiana, suddenly had too many hogs on his hands. Meatpacking plants shut down for weeks, or reduced production. The pigs could not get to market.

“How long is this going to last and what can we do so we don’t have to euthanize animals?” he recalled thinking. “That’s option Z. No one wants to implement measures they don’t have to,” he said. “It’s a toll.”

Aug. 6, 202001:40

It’s Economics 101. Hog slaughters plummeted in April and May, restricting supply at the same time demand increased from households stocking up. So the retail price went up, too. For instance, the national average retail price for a pound of bacon rose from $4.73 in January to $4.98 in May, according to Nielsen data.

Then something more complex happened.

In June, hog slaughters recovered to near pre-pandemic levels, increasing supply, a trend DeKryger thinks will have continued for July. But instead of going down, the retail price of bacon kept rising, to $5.51 in June, a more than 16 percent increase from the beginning of the year.

And it’s not just bacon.

Shoppers are still paying nearly 13 percent more for ground beef than they did in January, even though cattle slaughters have completely rebounded.

In July, the average price of fresh ground beef was down by over 9 percent, compared to June, but shoppers are still paying nearly 13 percent more than they did in January, even though cattle slaughters have completely rebounded.

Shoppers paid 4 percent less for eggs in July than June, the second consecutive month of lower egg prices. While decreased consumption is typical during warmer months, consumers still paid 2 percent more than in January.

“Americans paid the most for their groceries in May, looking at the prices for a common basket of goods each month in 2020,” Phil Tedesco, director of retail analytics for Niesen, told NBC News. “On a weekly basis in July, prices are softening slightly or staying flat, but are still above pre-COVID-19 levels.”

Prices have spiked even more in certain metro areas. In July, the Los Angeles metro area paid nearly 10 percent more for a dozen eggs. Residents in the Atlanta area paid nearly 27 percent more for a pound of bacon than in January. And the former meatpacking capital of Chicago paid 30 percent more for a pound of fresh ground beef.

A spokesperson for the Food Industry Association, a trade organization that represents supermarkets, referred a request for comment to an online FAQ. It highlighted the grocery industry’s razor thin margins and said food price increases were driven by “a complex algorithm” that included increased labor costs and manufacturers’ restrictions such as reduced production due to social distancing measures and lower access to critical inputs.

But that doesn’t escape the fact that the wholesale supply restrictions that drove up the prices have largely dissipated, while prices for consumers, though easing slightly in recent months, remain well above their pre-pandemic levels.

Cattle slaughter for July was actually up 10 percent over last year, which itself was a record year, said Gary Morrison, a beef analyst at Urner Barry, a leading agricultural price reporting agency. Plants are currently working through a backlog of cattle and hogs.

Eggs, which some supermarkets rationed earlier in the pandemic, are actually being overproduced now. Growers are increasing their cage-free flock of chickens to meet industry goals, but are not taking out as many animals as they put in. The industry is, however, also dealing with some reduced availability of egg cartons.

Why reduce a price today if a pandemic surge may mean you have to raise it tomorrow, and confuse customers?

“Retailers are slower to adjust prices lower as wholesale prices drop. There’s no way they were making money. Now prices are more normalized,” said Morrison, “and they’ve increased margins,” hoping to also recover from some of the pandemic economic impacts.

There may also be something more subtle at play. According to research by Timothy Richards, an agribusiness professor at the W. P. Carey School of Business at Arizona State University, shoppers pay close attention to prices as they go up but tune out as prices fall.

“We used to think this was due to retailers’ market power — they do it because they can get away with it,” said Richards. “But now we know it is more likely due to search dynamics — people just don’t search as much when prices are falling, so retailers don’t need to reduce them as fast,” said Richards.

Retailers could lower the prices, but then a pandemic surge could tighten supply again, requiring another price increase. Why reduce a price today if you have to raise it tomorrow, and confuse customers?

The overall uncertainty has farmers squinting at the horizon.

“I don’t know what the future holds. I know what we’re facing today. And what we’re facing today is we have too many pigs,” said DeKryger.

Visit the Source: https://www.nbcnews.com/business/consumer/pandemic-grocery-prices-shot-rocket-fell-feather-even-after-supplies-n1236155

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