Economists often describe recent U.S. grocery price trends with the term ‘rockets and feathers.’ Prices for groceries rose quickly during the pandemic, much like a rocket. However, they have been slow to decrease, drifting down like a feather. This situation has been difficult for Americans, as they have faced the steepest grocery price increases in 50 years. Although inflation peaked in 2022 with an 11.4% rise in prices, they have not significantly decreased since then. Recent events, such as the conflict involving the U.S., Israel, and Iran, have further delayed any relief.
Matt Hamory from AlixPartners notes that people are realizing, ‘Inflation may have slowed, but prices aren’t dropping.’ A deflationary environment is necessary for prices to fall, which is uncommon. According to the U.S. Department of Agriculture, prices for food consumed at home are expected to rise by 2.7% this year, a figure above the inflation experienced in 2024 and 2025 but close to the historical average of 2.6%.
Consumers are still dealing with the compounding effects of these price shocks, altering their behavior in ways that could affect the U.S. economy. A study by Bain & Co. and NielsenIQ indicates a decline in the number of items purchased in U.S. grocery stores starting in the second half of last year, with a marked drop from February this year. High gas prices, increased GLP-1 usage, and reduced food aid account for changes in grocery spending.
Shoppers are actively searching for deals. Retailers like Costco, Walmart, and Aldi have gained market share over traditional grocery stores such as Kroger and Albertsons. Many consumers have switched from name-brand products to store brands to lower costs. The Private Label Manufacturers Association reported that sales of store brands reached a record $282.8 billion last year. Sean Hooper from Relex Solutions cites the lower cost of store brands, which is about 40% less, as a reason for this shift.
Retail prices soared post-pandemic due to factors like the Ukraine war and a bird flu outbreak that drove egg prices to new highs. Consumers have learned to expect a slow decrease in prices once they rise.
Retailers often hesitate to lower prices on stock acquired at higher wholesale costs, says Jared Bernstein from Stanford Institute for Economic Policy. Companies prioritize profit margins, resisting pressure to reduce prices even after benefiting from pandemic-era sales. PepsiCo, for instance, increased prices sharply over several quarters in 2022 and 2023 before decreasing snack prices when demand dropped.
Consumer habits can inadvertently keep prices high. When prices surge, people shop around. Yet, when prices begin to stabilize, the urgency to find deals diminishes, reducing pressure on retailers to cut prices further.
Certain grocery inflation issues stem from long-term challenges. For example, U.S. coffee prices have increased by 54% since 2019, largely due to climate-related challenges affecting coffee yields in countries like Vietnam and Brazil. On the flip side, some issues are more straightforward. Fresh tomato prices rose by 19.5% in June compared to the previous year, mainly due to a 17% import tax on Mexican tomatoes initiated by the Trump administration.
Optimistically, Matt Hamory suggests larger retailers are investing in price reductions. In July, Walmart announced price cuts on staples like ground beef and potato chips, while Target reduced prices on select foods in March. Such moves by major retailers could prompt others to follow suit, potentially leading to broader market changes.