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MSU Study: Grocery Price Hikes Have Lasting Impact on Inflation Views
6 Nov
Summary
- Restaurant price increases affect inflation expectations short-term.
- Grocery price hikes influence inflation expectations for three months.
- Food prices significantly impact consumer views on the economy.
New research from Michigan State University indicates that grocery price increases leave a more enduring mark on inflation expectations than restaurant menu price hikes. While dining out at restaurants can cause a significant, albeit brief, surge in consumers' one-year inflation outlook, its effect dissipates within a month. In contrast, the impact of rising grocery prices lingers for approximately three months, according to MSU food economist David Ortega.
Ortega explained that the nature of grocery shopping and engaging with the service economy contributes to these differing impacts. Although food accounts for about 13% of U.S. household spending, its price fluctuations heavily influence consumer perceptions of inflation due to their frequent visibility. These inflation expectations, in turn, can lead to broader economic effects, influencing savings and spending habits.
Despite grocery prices being only around 2% higher than last year, they remain 30% above 2020 levels. This persistent increase disproportionately affects low-income households, which allocate a larger share of their disposable income to food, shaping their overall view of the economy.
