Why Groceries Are So Expensive

Estimated reading time: 3 minutes

While inflation has cooled, grocery shopping can still be a financial burden, especially when you compare today’s prices to pre-pandemic times. 

Why have grocery prices risen so dramatically since 2019? Some politicians say grocers have raised prices to pad profits. Retailers, on the other hand, have blamed supply chain woes and rising food and labor costs.
The truth may be somewhere in-between, according to analysis from the Federal Reserve Bank of New York.

Paying More at the Grocery Store

The rising profits of food retailers have caught the eye of government regulators. The FTC is trying to block the merger of grocery giants Kroger (KR) and Albertsons (ACI), for example, claiming it would result in less choice and higher prices for consumers. Both companies have vehemently denied this. 

Some politicians have embraced the narrative that desire for higher profits is the main factor driving high grocery prices. And it’s true that food retailers’ margins have gone up since the pandemic started. From 2019 to 2023, they jumped from 2.9% to 4.4%. 

But those numbers don’t tell the whole story. To put the increase in context, “this increase in grocery store profit margins (revenues over costs) is small compared to the 25 percent increase in grocery prices over this period,” said Thomas Klitgaard, an economic research advisor for the New York Fed.
So yes, retailers are raking in more revenue. But higher prices can indeed mostly be attributed to wage increases for grocery workers and a spike in agricultural and livestock prices, Klitgaard said. As commodity prices have dropped, some food prices have come down, providing some relief for shoppers.

How to Save

While economists debate if policy should be used to bring grocery prices down, ordinary Americans are just trying to figure out how to put food on the table.

It’s alway a good idea to build a budget and figure out how much money you should spend on groceries. If you’re dropping too much on food, consider some tips for cutting your grocery bill, including buying store brands and sticking to your shopping list. 

As for food prices, cooling inflation means they’re not going up as quickly as before, but it doesn’t mean they’re dropping across the board either, so keep a close eye on your grocery spending.

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