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Food in Focus: March consumer prices rise, but COVID-19 dings data collection

On-the-shelf U.S. grocery prices rose faster than wholesale costs in March. But the monthly estimates came with more qualifications than usual as the novel coronavirus hindered on-the-ground documentation of food prices.

The difference between year-over-year changes in consumer food prices and wholesale costs turned positive in March for the first time since May 2019, according to data from the U.S. Bureau of Labor Statistics, or BLS. While the final-demand food index of the producer price index, or PPI, rose 0.8% during the month, the food at home index of the consumer price index, or CPI, advanced 1.1% over the same period, BLS said.

Grocery analysts use the difference between the two metrics to evaluate the state of supermarkets' profit margins. For March, the difference was positive by 0.3 percentage point, suggesting that, in aggregate, grocers' margins improved. But BLS cautioned that the spread of COVID-19 curtailed the bureau's normal data collection during the month.

Work-at-home requirements for federal employees forced the BLS to pause in-person data collection trips to stores for the CPI on March 16. For the remainder of the month, it collected data remotely through phone calls and company websites. This methodological detour coincided with a surge in grocery sales during the month as consumers stocked up to comply with stay-at-home orders and restaurants halted dine-in services or shuttered completely.

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"While the CPI program attempted to collect as much data as possible, many indexes are based on smaller amounts of collected prices than usual," BLS said in its April 10 CPI release. In a separate statement, the bureau said grocery stores were among the establishments that it was unable to visit during the second half of the month.

That shift in methodology is likely to throw off the measurement, both in the short-term and beyond, Trey Malone, a professor in the Department of Agricultural, Food and Resource Economics at Michigan State University, said in an interview. Already, economists focused on a variety of industries are deciding how to work around what is likely to be months of remotely collected data, Malone said, adding, "This data is going to do a disservice to most long-term trend models."

Instead, Malone has been using weekly data from other government and private sources to monitor March food prices. That data shows that prices for proteins, including beef, chicken, pork and eggs, all increased during the second half of March, though meat prices gave up many of those gains before the end of March.

What consumers buy at grocery stores — and how much they pay for it — will likely be dictated by how food supply chains adapt to consumers eating more at home, Malone said. Milk prices, for instance, rose 4.9% in March, according to BLS, and the grocery mainstay was out of stock at many grocery stores in March.

Yet dairy farmers found themselves dumping milk that had been destined for nongrocery buyers, such as school cafeterias, as prices fell and they were unable to redirect it immediately toward retailers. "These supply chains have been planned out for 30 days a piece," he said.

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March consumer prices for dairy and related products rose 3.7% over the same month in 2019, while meats, poultry, fish and eggs advanced 2.3%. Nonalcoholic beverages and beverage materials notched a 1.4% gain, while cereals and bakery products increased 0.1% and other food at home, which includes oils and gum, rose 1.4%.

Producer prices for eggs increased the fastest of any food category during the month, rising 35%, followed by pork, which advanced 14%.

A shift to more food-at-home sales in March led grocers to report an uptick in weekly and monthly sales. The Kroger Co. said April 1 that it expects the demand to push its first-quarter EPS above previously forecast ranges.

As sales have taken off, many grocers and their suppliers have scaled back discounts and promotions that have previously helped stoke sales but also eaten away at profit margins. Retailers "are looking to pull back on promotions as they try to manage the basics of just keeping their shelves stocked," Conagra Brands Inc. President and CEO Sean Connolly told analysts during a March 31 earnings call.

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The highest-value food industry deal during the month to April 10 was ALDI SARL's $786.6 million acquisition of three warehouses and 567 stores from Casino Guichard-Perrachon SA. The deal, announced March 20, adds Casino's Leader Price discount grocery chain to German grocer Aldi's French network.

In the U.S., Amazon.com Inc.'s Whole Foods Market Inc. agreed to pay $2.5 million for two stores operated by smaller rival Earth Fare Inc., which filed for bankruptcy protection in February. One store is located on Gunbarrel Road in Chattanooga, Tenn., while the other is in Asheville, N.C.

The period also included several announced transactions involving the assets of milk producer Dean Foods Co., which won approval from a U.S. bankruptcy court, Dean said April 4. The deals included the sale of Dean operations in Florida and Hawaii as well as its Uncle Matt's Organic brand.