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We’ve never, ever seen anything like this: Food industry leaders sounds off on inflation, and what’s to come

May 19, 2022 | | Print Article

Thanks to recent never-ending inflation, some restaurants are reportedly being forced to charge “market prices” for their grub.

Take Sal & Mookie’s New York Pizza & Ice Cream Joint, a Jackson, Mississippi pizzeria owned by Jeff Good. Speaking with Bloomberg, Good said that he’s had to up the cost of a 15-piece order of chicken wings from $13.95 to a whopping $27.95.

But even this may not be high enough …

“Around 18 months ago, a 40-pound box of chicken wings cost him about $85. Now, it can go as high as roughly $150. Expenses for cooking oil and flour have nearly doubled in the past five months, he said. But it’s not just ingredient prices going up. He’s paying more for labor and services, too. Even the company that maintains his air conditioners has tacked on a $40 fuel charge per visit,” according to Bloomberg.

“We have never, ever seen anything like what we’re seeing right now,” Good, a 30-year veteran of the industry, said.

Consumers appear to feel similarly:

Yet even more price hikes are expected …

“[P]ressures on food production continue to build, signaling that [the Producer Price Index, an inflationary measure] could keep climbing. Farmers are facing a myriad of challenges, including fertilizer shortages, drought and adverse weather, along with a US bird flu outbreak that’s killed almost 10% of the country’s egg-laying hens,” Bloomberg notes.

“Plus, the war in Ukraine and its effect on fertilizer supply and fuel markets only exacerbate the problems. All those factors will likely lead to reduced crops, livestock feed, meat and other food supplies — and contribute to more price gains.”

Making matters worse, the Consumer Price Index (CPI) has yet to catch up to the Producer Price Index (PPI).

PPI is essentially a reflection of how much producers (the people selling the grub) are paying, whereas CPI is essentially a reflection of how much consumers are paying.

Take a look at the chart below, and notice how PPI has been climbing higher much more steeply than CPI. There’s a reason for this.

“Price changes for foods included in the CPI basket lag behind the PPI by a month or two,” as reported by Bloomberg.

This means that eventually, CPI will begin to experience the same steep curve upward, which “will probably translate into sizable hikes in the prices that consumers see in the next few months,” according to Stephen Stanley, the chief economist at Amherst Pierpont Securities.

Meanwhile, PPI is poised to continue spiking as well, meaning more future CPI spikes.

“Already in April, the US Department of Agriculture hiked its 2022 forecast for producer price inflation for most core foods. Cooking oils and farm-level wheat are expected to jump about 40% this year, compared with December projections of increased prices of as much as 5% and 4%, respectively,” according to Bloomberg.

“The outlook for higher food prices reflects a broader trend for the US economy. A new era of elevated inflation is likely to prove stubbornly higher than the 1.5%-to-2% range that American consumers, businesses and investors grew accustomed to before the pandemic spike.”

And then there are contract renewals.

“[T]hings could get even worse since many big restaurant chains and food retailers sign long-term contracts for supplies. As agreements inked six or 12 months ago come up for renewal, they’ll likely be set at the current higher costs,” Bloomberg notes.

Thanks to the inflation, average menu prices in April were reportedly up by 7.2 percent from April of 2021.

But again, things could and will likely get much worse as the prices being paid by producers rise more and more.

Last but not least is sticker shock. Part of the issue is that some producers have tried to keep consumer prices at bay to avoid cutting into demand.

“But eventually, they will need to increase prices. There’s a lot of inflation yet to come,” Brian Choi, the CEO of Food Institute, told Bloomberg.

Indeed …

Vivek Saxena
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