Food inflation takes its toll on US consumers

The news: Despite slowing inflation and falling gas prices in August, US shoppers felt little relief as higher food bills forced many to recalibrate their spending patterns.

  • The CPI was 8.3% higher year-over-year (YoY) in August, per the Bureau of Labor Statistics—down slightly from July but staying close to a four-decade high.
  • Food-at-home prices continued to soar, rising 0.7% month-over-month (MoM) and 13.5% YoY.

No cost savings for the weary: Online prices rose 2.1% MoM in August, per Adobe, reversing last month’s decline breaking a 25-month streak of price increases.

  • Two-thirds of the categories tracked by Adobe reported higher prices—but as with the CPI, grocery inflation vastly outpaced other sectors with 14.1% YoY price growth.
  • The absence of a Prime-like sales event in August likely discouraged many from spending, while back-to-school sales were constrained by budget concerns as well as higher levels of discounting.

Households feel the strain: Compounding the difficulty for consumers is the fact that real wages aren’t rising fast enough to compensate for higher costs of living.

  • While real average hourly earnings rose 0.2% MoM, they’re still down 2.8% YoY—putting acute pressure on workers grappling with higher shelter and transportation costs.
  • Median household income stayed flat last year compared with 2020, per an annual report by the US Census Bureau, despite the tight labor market.
  • At the same time, the poverty rate fell by 1.4% in 2021 thanks to federal stimulus measures—although those gains could easily be erased by persistent inflation.

Some retailers thrive…: For some businesses (like grocers and certain discount retailers), higher food costs are an opportunity to win a greater share of wallet and boost foot traffic from deal-seeking shoppers.

  • Kroger raised its annual forecast as it benefited from more consumers opting for private label brands and eating in, per its Q2 earnings release.
  • Albertsons also raised its full-year outlook after comp sales grew 6.8% YoY in Q1.
  • Dollar General and Dollar Tree each reported quarterly sales gains in Q2 as shoppers purchased more consumables and other need-based items from discount retailers.

…while others struggle: The pullback on discretionary spending has hurt many non-luxury, non-grocery retailers, with apparel and consumer electronics businesses particularly hard-hit.

  • Rent the Runway lowered its sales outlook and announced plans to cut almost one-quarter of its employees as more consumers canceled or paused their subscriptions, per Reuters.
  • American Eagle’s sales fell 6% YoY in the last quarter as the company resorted to more markdowns to move inventory amid sluggish demand.
  • Weakening demand for consumer electronics caused Best Buy’s sales to drop 12.8% in Q2.

The big takeaway: Despite the doom and gloom surrounding the inflation numbers, there are signs that falling gas prices are causing consumers to feel better about the economy.

  • Consumer confidence grew in August after a three-month decline, while consumers’ assessments of their short-term financial prospects, purchasing plans, and business conditions all improved last month, per The Washington Post.
  • Energy prices fell 5% MoM in August, giving shoppers some breathing room and some extra funds to allocate toward rent and groceries.
  • At the same time, consumers’ deal-seeking behaviors will endure well into the holiday season as inflation curbs discretionary spending.

This article originally appeared in Insider Intelligence's Retail & Ecommerce Briefing—a daily recap of top stories reshaping the retail industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.