The major factors driving up the cost of food

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• William Brangham:

  Later this week, we will get another report on the pace of inflation in the U.S., and there's some hope that it is finally slowing.

  But you have probably noticed higher prices at the grocery store already on everything from dairy, to meat, to wheat products. The cost of groceries rose 13.5 percent in the past year. That's the largest increase in 43 years.

  Our economics correspondent, Paul Solman, looks at what's driving those costs up.

• Paul Solman:

  At the daily market in Boston's Dorchester neighborhood, I asked agricultural economist David Ortega about food prices.

  Have you ever seen anything like this?

• David Ortega, Michigan State University:

  Not in my lifetime, no.

• Paul Solman:

  So what are the major factors?

• David Ortega:

  First, we have the supply chain disruptions from COVID that are still lingering. Those lead to rising energy prices, rising transportation costs, rising labor costs. On average, 16 cents out of every dollar spent on food can be tied back to the farm.

  Everything else, the vast majority, has to do with things like processing cost, transportation, the wholesale and the retail trade. And we have seen all of those prices go up.

• Paul Solman:

  Meanwhile, another cost driver, climate change.

• David Ortega:

  If we look at the heat and drought that's taking place out West in California, that's where a lot of our produce is coming from.

• Paul Solman:

  Right.

• David Ortega:

  And a lot of those crops are lower in yield because of heat stress, some failed crops, and that's less food available in the market, and which puts upward pressure on prices.

• Paul Solman:

  And then, of course, there's the war in Ukraine.

• David Ortega:

  That region is what's called the breadbasket of Europe, a major supplier of wheat and sunflower oil, which goes into a lot of processed food products. So that set off rising commodity prices on the global market.

  They have started to come down from their highs back in April and May. But it takes time for all of that to work its way down the supply chain to consumers.

• Paul Solman:

  Finally, there's the fowl factor.

• David Ortega:

  The bird flu outbreak this year, it's the second largest outbreak we have seen in modern history. It's affected over 40 million birds, many in commercial operations. And that sent the price of poultry and eggs surging.

• Paul Solman:

  As is evident on store shelves.

• David Ortega:

  Eggs are up 40 percent year over year, and the fear is, is that we're going to see further outbreaks as we get into the cooler months.

• Paul Solman:

  The price may go up even further?

• David Ortega:

  It can. It all depends on what happens.

• Paul Solman:

  And if you plan to beat inflation by breakfasting on cereal, instead of eggs, think again.

• David Ortega:

  When we look at wheat and processed wheat products, they're up just above 20 percent year over year. Life cereal…

• Paul Solman:

  Life, yes.

• David Ortega:

  Life, so that's $5.49 for this box here.

• Paul Solman:

  Yes.

• David Ortega:

  A small box.

• Paul Solman:

  Yes.

• David Ortega:

  A lot of that has to do with the rise in grain prices from the Russian-Ukraine Conflict.

• Paul Solman:

  The cost of butter up close to 30 percent.

• David Ortega:

  Energy costs, transportation costs that are needed to make butter are all high.

• Paul Solman:

  When it comes to climbing coffee costs, climate change is the culprit, says Ortega.

• David Ortega:

  Coffee in general, we're looking at about almost 20 percent more expensive than last year. A lot of this is tied to adverse weather around the globe, especially in coffee-producing regions like Brazil that saw frost and drought last year. And that's put upward pressure on prices.

• Person:

  It's a shock every time I want to get groceries.

• Paul Solman:

  The consumer reaction, sticker shock.

• Person:

  I mean, I'm a young professional here and just earning a salary. So it's pretty hard to get by like this.

• Person:

  I pity people with families. I don't know how. My wife was from a family of 14. I don't know how people are feeding four or five.

• Person:

  I mean, it sucks.

  (LAUGHTER)

• James Baker, Owner, The Daily:

  I mean, I get that.

• Person:

  I feel for the customers. But it's — it's just not — it's not abating.

• Paul Solman:

  James Baker owns The Daily market.

• James Baker:

  We have a load that came in today. We have 13 pages of price changes we have to make right here. So we will have price tags we have to put on the shelf to change the prices and increase them.

• Paul Solman:

  This is Nishiki rice brown, so brown rice. Previous price, $5.39, retail price $7.49.

• James Baker:

  Yes.

  (CROSSTALK)

• James Baker:

  And this is from week to week.

• Paul Solman:

  No?

• James Baker:

  Yes, this — we get this once a week.

• Paul Solman:

  I'm looking down here. There isn't an item that hasn't gone up in price.

• James Baker:

  There's a few, not many.

• Paul Solman:

  Oh, yes. Dalmatia Spread Fig went from $6.79 to $6.29.

• James Baker:

  Look at that. We have a winner.

  (LAUGHTER)

• Paul Solman:

  Like many consumers, small businessman Baker believes corporate opportunism is also helping drive up prices.

• James Baker:

  In certain parts of the food industry that have been consolidated, and where there was more competition previously, there's not as much competition.

  You talk about the major pork providers, they have all been consolidated, so the company can drive their profit margin up and maintain the higher price.

• Paul Solman:

  Are customers moving from more expensive to less expensive substitutes?

• James Baker:

  Some of that's happening. We carry a lot of higher-rent chicken products. And we have now brought in a good-quality chicken product, but much more affordable. And you're seeing that's moving off the shelf quite a bit.

• Paul Solman:

  But economist Alberto Cavallo, whose Billion Prices project tracks prices daily online, says more demand for cheaper products is driving up their prices much faster.

• Alberto Cavallo, Harvard Business School:

  We actually found that the cheaper varieties at the beginning of the pandemic have experienced nearly twice as much inflation as the most expensive varieties. And why is that happening? Well, as people are substituting into cheaper goods, they're increasing the relative demand. And that pushes prices up in this context of very limited supply overall.

• Paul Solman:

  No wonder higher prices are busting American budgets, devastating paycheck-to-paycheck households, who spend a higher percentage of their budgets on food.

  But David Ortega notes that food inflation is creating catastrophe elsewhere in the world.

• David Ortega:

  Places in North Africa, the Middle East, their food price is surging 20, 30, in some cases, even above 50 percent, so those countries in worse shape than what we have here in the U.S.

  We also look at regions in the Horn of Africa. They're on the verge of famine, and that's a very critical situation.

• Paul Solman:

  OK, the final big question: When, if ever, will food inflation slow down?

• David Ortega:

  We hope that prices start to moderate or at least the rate of increase starts to moderate. But because the rate of increase starts moderating doesn't mean that prices are going to come down. And that's important to keep in mind.

  When we talk about inflation, we're talking about the rate of increase in prices. And so, when that starts to come down, it just means that prices are rising, but just not as quickly.

• Paul Solman:

  I think most of us would say, we will take what we can get.

  For the "PBS NewsHour," Paul Solman in Boston.