The first time I had chocolate babka was three years ago at a bakery in New York — I have not been able to get it out of my mind since. Over winter break, I decided to take on the Herculean task of making it myself. Unfortunately, after the eighth failed loaf, my mother put a stop to the operation. The cost of flour was too high for me to be wasting all of it on my disastrous attempts to make fancy chocolate bread.
According to the Consumer Price Index (CPI), my mother was right about the rising price of flour. Among other consumer goods, the latest data showed that flour prices have increased by 16.3% in the last year. Others have noticed the increase in the cost of groceries as well. According to the Pew Research Center, as of June 2022, 96% of Americans expressed concern over the rising price of food and other goods.
The CPI Survey is the federal government’s way of tracking price changes in consumer goods and services. The latest report, released on Jan. 12, documents the kinds of price increases that are worrying consumers (among them my mother). The most recent data includes inflation numbers for Dec. 2022 and provides a snapshot of how inflation has changed over the past 12 months.
The CPI data, which is collected by the US Bureau of Labor Statistics, is grouped into three main categories: food items, energy and all items less food and energy. While average prices decreased by 0.1 percent from Nov. to Dec. 2022, they increased by 6.5% from Dec. 2021 to Dec. 2022. Energy prices saw a slightly higher 12-month jump of 7.3%, and food prices saw the largest increase in the past year of any category with 10.4%. In particular, food purchased from grocery stores, referred to by CPI as food at home, increased by 11.8% over the same period.
The main explanation circulating is that the rise in food prices is due to similar increases in the price of fuel and transportation. As a result of Russia’s invasion of Ukraine, the price of oil has been particularly volatile. Part of this increase in the cost of producing and transporting food is likely passed on to consumers through higher prices. Consequently, the cost of food is rising and will continue to in 2023. According to the United States Department of Agriculture, at-home food prices are predicted to rise by 8.0% in 2023, with intervals of 4.5 to 11.7% per good.
While these price increases hurt all consumers, the reality is that low-income families bear the brunt of the cost. A report from the Federal Reserve Bank of New York found that the bottom 40% of households are facing a higher rate of inflation than the national average, mainly given the increased cost of food and housing.
Engel’s Law, created by statistician Ernst Engel in 1957, explains this reality. It asserts that as a household’s income rises, the percentage of its income spent on food decreases. Put another way, low-income families spend a higher share of their income on food. Additionally, according to the Brookings Institute, while the share of income spent on food has shrunk significantly for middle-class families over the past 30 years, it has remained constant for low-income families. As a result, even minor increases in price can have huge impacts. For example, in a Dec. 2022 survey, the Pew Research Center found that 52% of low-income families did not have enough money for food in the past year.
The impacts of the rise in food prices are being felt beyond households. The latest CPI data also showed a 305.2% increase in the cost of food at elementary and secondary schools. The School Nutrition Association’s 2023 School Nutrition Trends Report found that 99.8% of schools polled indicated that increasing costs posed a challenge to their school nutrition program. According to the report, 60% of school meal program directors said they had to increase the price of school meals due to rising food costs. The high cost of breakfast items, entrees and snacks is especially troubling. Breakfast items, in particular, are among the foods that have faced the highest inflation in the past year. For example, the cost of cereal and bakery products has risen by 16.1% on average.
Those like my mother who have noticed the price of groceries rising are not alone. At the same time, while food price increases have impacted everyone, the effects have been felt most dramatically by low-income consumers. With food inflation predicted to rise further in 2023, it is worth keeping an eye on how these disparate effects continue to widen the gap between low-income and high-income households.