Grocery Prices Surge 25.6% Over Four Years

Ariane Navarro, a Houston resident, recently reviewed her budgeting spreadsheets from 2021. She was shocked by how much her family’s grocery bill has skyrocketed. From February 2020 to July 2024, grocery prices grew a cumulative 25.6%.

This is higher than the overall inflation rate of 21.6% during the same period. “We have no other choice — we have to buy groceries,” says Navarro. “That’s a basic need.

And so [companies] use that to kind of take advantage and keep raising prices.”

There’s no dispute that food sellers and manufacturers have passed costs on to consumers. Their costs increased substantially from the start of the coronavirus pandemic. Initially, there was a crush of shoppers stockpiling groceries to prepare for lockdowns.

Operations slowed at meatpacking plants and transportation companies. Workers fell ill, leading to firms spending on anti-coronavirus measures. Prices surged for commodities, such as wood pulp for diapers.

Later, Russia’s invasion of Ukraine led to further increases in the prices of grains, vegetable oil, and fertilizer. Avian flu, floods, and droughts caused spikes in the prices of poultry, oranges, and wheat. Throughout it all, companies increased wages as labor markets tightened.

Researchers at Federal Reserve Banks in Kansas City and New York highlighted that higher pay for workers in food manufacturing and retail is a key driver of grocery price hikes. Shoppers often wonder how far companies reach past costs to boost profits. Financial disclosures by a dozen of the largest grocery-item makers and sellers were analyzed.

Grocery spending impacts household budgets

This included Walmart, Pepsi, Mondelez, and Procter & Gamble. The analysis tracked changes in the percentage of money that stays in corporate coffers after a sale, known as the gross profit margin.

Between 2018 and 2023, margins either declined or grew by less than 1% for almost all companies analyzed. This data doesn’t explain why families like Navarro’s are finding their grocery budgets stretched by pricier meat and snacks. Data from the Census Bureau shows that food manufacturers’ profit margins climbed and fell dramatically during the pandemic before settling near pre-pandemic levels at the start of 2024.

Supermarkets and convenience stores, less profitable businesses overall, saw gradual increases in profit margins, holding onto gains longer. Federal Reserve researcher Thomas Klitgaard noted that while grocery store profit margins have increased, the rise is a small contributor to the overall food price inflation relative to their operating costs. Economist Ernie Tedeschi pointed out that grocery markups above costs rose slowly but stayed high throughout the pandemic.

This data aligns with the Biden administration’s stance, which acknowledges that store markups don’t fully explain food inflation. One factor could be shoppers buying more store-brand groceries, which are cheaper but more profitable for retailers. U.S. shoppers spent 6% more on private-label items in 2023 than in 2019.

People have also been spending more on groceries while cutting back at other stores, driven by increased disposable income from pandemic relief checks and wage growth in many jobs. “If supply is fixed and buyers suddenly have more money, prices are going to rise,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. Retailers managed to maintain higher margins, suggesting a complex interplay between costs and pricing strategies.

Only this year did brands including Pepsi and Nestlé start cutting some prices. Walmart and Target have also made moves to reduce prices. The cost of ingredients and shipping has eased, and wage growth has cooled.

As a result, many grocery prices, including those for cereal, cheese, and fruit, have started to fall. Navarro and many other shoppers hope this means prices will stop rising, at least for a while.