The Cost of Groceries

Food at home CPI decelerated in January, driven by most major categories

Still, our economists expect food prices may remain slightly higher for longer driven by the following factors:

1. The promotional environment remains rational: Retailers have not been taking steep discounts that would hit their margins to drive higher sales. The price differences between retailers have remained fairly consistent.
2. A constructive consumer cash flow backdrop: Consumers remain healthy and are likely able to absorb prices without significant change to their demand for groceries. Goldman Sachs Research anticipates discretionary cash flow would grow 3.7% this year.
3. Continuing wage pressure at traditional grocers (including previously set union contracts).

What’s affecting food prices?

In 2022, the highly pathogenic avian influenza outbreak and the conflict in Ukraine fueled food price hikes, increasing at a rate faster than any year since 1979, according to the US Department of Agriculture (USDA).

Higher wages and drought impact on the supply chain are also fueling food inflation. The USDA expected food production costs to rise 4.1% in 2023.

Egg prices went up in recent months due to new cases of the avian influenza found in egg layers last November, the USDA reported. The outbreak has ended, and USDA predicts egg prices to decrease 4.6% in 2024.

Eating in is cheaper than eating out

It may be obvious that buying groceries is cheaper than eating out, but at the tail of the pandemic, consumers have favored going to restaurants. Goldman Sachs Research found during the 18 months before March 2023, people spent more at restaurants, and the gap between grocery and restaurant spending was narrower.

Then in March, this dynamic shifted where restaurant inflation started outpacing grocery, which indicated groceries have become a relatively better value versus eating out.

Some tips to save on your grocery bill

Even though groceries are still high where a thrifty meal plan for a family of four could cost $1,052.30 a month, according to the USDA – there are still ways to save.

Here are some tips to consider:

• Plan your grocery list and stick to it: It’s easy to add purchases in the shopping cart, but if it does get out of control, consider shopping on your supermarket’s app and picking groceries up on the curbside so there won’t be too many surprises at checkout.
• Bulk buying is not necessarily cheaper: It’s important to check if the price per unit or ounce is indeed cheaper and that you will use the goods before they expire or go bad. Freezing bulk produce or meal preps may make the bulk buy worth it.
• Wait for sales: Ask your grocery store which day they have sales. Check if there’s a section with discounted items.
• Join a grocery store loyalty program: Most loyalty programs will have coupons and rewards from giving cash back to gifting products.
• Leave the big spender at home: If your spouse, child, or anyone else in your household loves to splurge, consider leaving them at home. What they don’t see, won’t be bought.