Wholesale Food Prices Go Negative On 12-Month Basis; First Decline Since Late 2009

Wholesale food prices declined for the fifth consecutive month in March, according to the U.S. Bureau of Labor Statistics and averaging by the National Restaurant Association, leaving the Producer Price Index for food 0.5% lower than in March a year ago. It’s the first time the index has run negative for a 12-month period since November 2009 during the depths of the Great Recession.

The decline in March vs. February was 0.3%, but over the past five months, average wholesale prices have dropped 5%. The strong downward trend comes on the heels of a pronounced run-up in wholesale food prices during the first half of 2014. Those gains were particularly apparent in the protein commodities, with beef, pork and dairy products showing annual gains of 25% or more. Beef prices still stood 15.5% higher than a year ago in March this year, but pork prices, for example, have plunged 19%.

The drop in wholesale prices is welcome news to foodservice operators, who have been pushing to cover last year’s increased prices with menu-price increases. Menu prices continued to rise in March, according to the BLS Consumer Price Index, up 0.2% for the month and 2.9% for the past 12 months. In contrast, grocery-store prices dropped 0.5% in March and are up only 1.9% during the past 12 months.

The drop in wholesale food prices while menu prices continue to increase should help operator margins and cash flow this year. While most of the forecasts called for moderation in food prices, the declines have been more pronounced than expected. And these increased margins and cash flow should help free some funds for capital investments and thus E&S industry sales.