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Dairy Prices Surge at Retail

FRAN HOWARD

July 7, 2022

The worst inflation in four decades has affected everything from natural gas to dairy. U.S. consumers began to really feel the pinch of inflation this past spring, when the average cost of goods and services started to increase faster than wages, said Sarina Sharp, analyst with the Daily Dairy Report.


Since then, inflation and the growing gap between wages and prices has accelerated. In May, the consumer price index (CPI) showed average prices had climbed 8.5% year over year. Average annual wages, however, had only increased 5.2%, effectively shrinking the average American’s spending power.


“Expensive energy has been the main driver of inflation, but pricey food has also been a factor,” Sharp said. “Until recently, the dairy case was one of the few grocery sections where shoppers weren’t suffering sticker shock.”


Compared to May 2021, the cost of food consumed at home climbed 11.9%, the steepest advance since 1979, according to the U.S. Bureau of Labor Statistics. Increases in retail dairy prices have also been accelerating. In March, retail dairy prices ignited, climbing 7% above the previous year. By May, the average price for a variety of dairy goods was 11.8% above year-earlier levels, according to government data.


“Consumers have noticed the higher prices, and they are making adjustments,” Sharp said. “Families are likely to prioritize keeping their fridge stocked with milk and cut back on less nutritious grocery items, but for budget-conscious consumers, drinking a little less milk and a little more water is a relatively easy path to savings.”


Indeed, Morning Consult reported that more than half of U.S. adults said they had changed the way they eat or drink due to inflating prices. Those with lower incomes and families with children were most likely to have changed their spending habits for food and beverages.


“That’s bad news for dairy sales because children are America’s most prolific milk drinkers,” Sharp said. “And sales of milk have been declining long-term even when price has not been an issue.”


Among those who have changed their consumption habits, Morning Consult reports that 84% are dining out less often and 72% are purchasing less meat. The company did not ask about dairy buying.


“Anecdotal reports from dairy firms, however, suggest consumers are also scaling back in the dairy aisle,” Sharp said. “Butter demand is reportedly a bit softer and cheese demand appears to be declining as well.”


dairyherd.com