Cost of food is dropping slightly

Grocery shoppers are finally seeing some reprieve from last year's steep price increases.


Prices for dairy, meat, fruits, vegetables and bread have all fallen. Retailers are slashing prices to better compete, and food makers are starting more promotions and passing along savings from lower ingredient and gasoline costs.

A Labor Department price index of food sold to be eaten at home fell for the seventh time in eight months in July. The index, part of the Consumer Price Index, fell 0.5 percent and is down 0.9 percent in the past 12 months.

Overall food prices -- what's sold in groceries and in restaurants -- haven't risen on a monthly basis since November 2008.

Still, that doesn't make up for the surge in food prices from last year, when costs for ingredients such as wheat and corn and fuel costs for transportation soared to record highs. Food makers raised their prices, and some even shrank package sizes to protect their profits. The food-at-home index finished last year up 6.7 percent, so the less than 1 percent drop so far this year doesn't erase that.

More price cuts could be coming. As of Sept. 1, ingredient costs for major food makers, including Heinz, Kraft and Hormel, are down about 28 percent on average from the same time last year, according to Jonathan Feeney, a food analyst for Janney Montgomery Scott. That means the food industry has room to give back some of those price increases.

Consumers' demand to save money is pressuring retailers and manufacturers to cut everyday prices and boost promotions throughout their stores.

Safeway Inc. recently announced lower prices on milk, eggs, cheese and other basic items. Whole Foods Market Inc. says low prices on produce, such as organic berries, have meant significant savings for shoppers.

Costco Wholesale Corp. says prices are down on items from paper towels to prime-cut meat.

Chief Financial Officer Richard Gallanti said the company made some drastic moves in pricing, including reducing the price of its rotisserie chicken by $1. The company sells almost 1 million of these chickens a week, so it hurt margins, but Costco determined it would be worth it in the long run.