Grocery prices inched up in February alongside those for energy and key fertilizers – a triple threat for the food and beverage industry as rising tensions in the Middle East disrupt key trade routes just weeks before farmers sow key spring crops.
The increase in prices for food consumed at home also reflect the ongoing passthrough of tariffs on key commodities that the US Supreme Court recently ruled were instituted illegally by the Trump administration, but President Donald Trump has promised to enact via other means as necessary.
Taken together, these economic and geopolitical indicators are creating uncertainty for food industry players across the supply chain and may prompt budget-conscious and inflation-weary consumers to further tighten their purse strings.
Grocery prices continue slow rise, but impact across categories is mixed
In February, the price of food consumed at home rose 0.4% month-over-month in line with the price of food overall, according to the Bureau of Labor Statistics, which released the Consumer Price Index March 11. This was on top of a 0.2% increase for both food and food at home in January. Year-over-year, the price for food at home rose 2.4% in February.
The increase is not uniform across categories. BLS showed higher inflation for fruits, vegetables, coffee and non-alcoholic beverages, while prices for dairy, bakery products and eggs all declined in the month.
How could the Iran and Middle East conflicts impact grocery prices?
Among the factors that affect food prices on store shelves are energy prices, which BLS reports also rose in February – up 0.6% month-over-month – after a dramatic reversal in January when prices fell 1.5%. The swings even out to a 0.5% increase over the past 12 months, according to BLS.
Transportation and agricultural input costs also factor into food prices, all of which are under pressure amid the conflicts in Iran and the Middle East more broadly.
“We are keeping a watchful eye on the impact of the conflict in the Middle East with regard to global oil and fertilizer availability,” noted Andy Harig, VP of tax, trade, sustainability and policy development at FMI – The Food Industry Association.
“Food production and transportation are energy-intensive, and sustained increases in oil prices can put upward pressure on food,” he explained.
Indeed, the American Farm Bureau Federation warned earlier this month that rising tensions in the Middle East are adding “uncertainty to fertilizer markets at the start of the US planting season.”
The Farm Bureau notes, “nitrogen fertilizer supply chains are closely tied to the Persian Gulf,” and “countries exposed to disruptions in the region account for nearly 49% of global urea exports and about 30% of global ammonia exports.”
Since the end of February, the price of urea, which is about 46% nitrogen and among the most commonly used solid nitrogen fertilizers globally, skyrocketed more than 25% to $579.75 per ton.
In a letter to President Donald Trump, the American Farm Bureau Federation lamented the closure of the Strait of Hormuz and recent energy production halts in the Middle East “will affect the price and availability of many downstream products farmers depend upon.”
It warns, “Without strategically prioritizing the delivery of critical farm inputs such as urea, ammonia, nitrogen, phosphate and sulfur-based products, the US risks a shortfall in crops” that is a “threat to our food security” and “could contribute to inflationary pressures across the US economy.
On that note, the federation urged Trump to “take proactive steps to safeguard fertilizer supply chains and reduce the risk of market disruptions that could threaten American agriculture.”
How will rising tensions and prices impact brands and retailers?
Higher costs at the farm-level likely will translate to higher prices on store shelves – compounding existing inflation which is already slowing consumer spending.
According to delayed retail data released by US Census Bureau earlier this month, retail sales in January fell 0.2% over the previous month after dropping the same amount month over month in December. However, retail sales still increased 3.2% for the full year.
“The grocery sector recently has been a pillar of stability,” with an increase of 0.2% in January over December and a 1.5% increase year over year, said Chip West, a retail and consumer behavior expert with the marketing, packaging, print and supply chain solutions provider RRD.
He attributed the “modest growth” to inflation and consumers’ focus on value.
“The gravitation to buying store brands to save money has likely kept transaction counts high, even in the midst of trading down,” he said, adding, “Because restaurant inflation has been nearly double that of grocery inflation, more households are apt to have shifted more of their food budget to grocery stores.”
Consumer deal-seeking behavior and preference for private label likely will intensify alongside geopolitical tensions and the conflicts in Iran and the Middle East.
“When global events start pushing prices up, retailers often see it first in how people shop. Shoppers start changing what they buy, leaning more toward deals, private label and promoted items,” said Sean Turner, CEO at the retail tech and media company Swiftly.
He explained that this shift can reveal where customers are feeling pressure, and argued basket-building promotions can help.
“If shoppers are trying to make every gallon of gas count, retailers can encourage them to stock up and get more value in a single trip,” he added.
