The U.S government's prediction for food costs in 2015 seem absurd.
Looking ahead to 2015, ERS predicts that supermarket (food-at-home) prices will see normal to slightly-lower-than-average food price inflation, increasing 2.0 to 3.0 percent.I will bet dollars to donuts that the above prediction bears zero applicability to the actual increases that will take place on supermarket shelves. In particular, the price of meat is going to soar by a multiple of the predicted 2.0% - 3.0% range, The price of beef will continue to rise due to the thinning of herds following the 2012 drought, pork is going to increase as the impact of the outbreak of Porcine Epidemic Diarrhea virus (PEDv) is transmitted to pork prices.
A couple of outcomes still to be determined will be the impact of 1) the bird flu on the price of turkey, poultry, and eggs; and 2) the California drought on the cost of vegetables. While some analysts are sanguine about the prospect for the impact upon food costs, I am most certainly not in that camp. It seems ludicrous to expect that poultry, eggs and vegetables will only increase in price by 2-3%. For those that wish to review the optimist case on food price inflation, view here for poultry and here for vegetables
The chart below shows the cumulative percent change in price for each of the eight categories since 2000.
Source: Advisor Perspectives
Food inflation is going to put a huge hole in household budgets during 2015. This impact on consumers will not be reflected in the CPI. Thus, be very skeptical of the reports the Bureau of Labor Statistics puts out on both CPI and core CPI. For a true reading on the rising inflation in food costs, monitor the prices on grocery shelves. The size of the differential in what consumers are really paying for groceries and what the Bureau of Labor Statistics reports is likely to be stunningly large.
Be wary of investments is firms that have benefited from lower gasoline prices putting money in consumers' pockets. The increase in food costs during 2015 may counterbalance most or all of these savings.