A drop in wholesale prices and an increase in prices consumers pay for retail food likely boosted grocers' profit margins in July, according to an analysis by S&P Global Market Intelligence.
The "food at home" subcategory of the consumer price index, or CPI, rose by 0.4% in July over a year earlier, according to the Bureau of Labor Statistics, or BLS. The subindex represents the change in average prices U.S. consumers pay for food at retailers.
"Final demand foods," a subcategory of the producer price index, or PPI, dropped 1.2% in July compared to the same month in 2017. The number represents the wholesale prices retailers pay for finished food products.
Grocery analysts and others use the difference between the CPI and PPI to track the state of grocers' profit margins by subtracting PPI growth from CPI growth. A positive result means profit margins are more likely to grow while a negative result means profit margins are more likely to shrink.
The difference in July was positive by 1.6 percentage points, according to S&P Global Market Intelligence's analysis of BLS data.
July marks only the third time in 2018 that the spread between the CPI and PPI was positive. The difference dipped into negative territory in March 2017 and remained there until April 2018 as grocers faced steeper price increases than increases in the prices they could charge customers.
The 0.9% price increases in both the fruits and vegetables and meats, poultry, fish and eggs categories helped push the overall food at home CPI subindex higher year over year in July. The only year-over-year price decreases came in the dairy and related products category, which fell 0.4% and in the nonalcoholic beverages and beverage materials category, which fell 0.3%.
On the wholesale side, a 15.5% year-over-over drop in prices for oilseeds — soybeans, sunflower seeds and canola — followed by a 13% drop in processed young chickens and 12.9% decline in fresh and dry vegetables drove the overall PPI decline in July.
The majority of protein continues to be deflationary, Jeffries analyst Christopher Mandeville wrote in an Aug. 9 note to clients. Produce overall is mixed, with vegetable prices down and produce prices up, Mandeville said in the note.
Eggs for fresh use led the wholesale price gains with an increase of 74.5% compared to the year earlier, followed by milled rice, which increased by 14.7% compared to the previous year.
By deal price, distributor United Natural Foods Inc.'s $2.94 billion bid for distributor and supermarket operator SuperValu Inc.was the most valuable food industry transaction announced during the 30 days to Aug. 10, according to data from S&P Global Market Intelligence.
United Natural Foods's bid came after a months-long activist campaign at Minnesota-based SuperValu, during which Blackwells Capital LLC sought to install directors on SuperValu's board as well as the sale of assets. SuperValu and Blackwells settled their differences on July 31, days after SuperValu and United Natural Foods made their deal public.
Additionally, Services Group of America, Inc. on July 30 announced its plan to sell its food group to foodservice supplier U.S. Foods, Inc. for $1.8 billion.
A few days later, Post Holdings Inc. agreed to sell its Dakota Growers Pasta Company, Inc. subsidiary, which makes private-label pasta for retailers and foodservice companies, for $250 million to a fund managed by Thomas H. Lee Partners, L.P.
Meanwhile, B&G Foods Inc. completed its $32 million purchase of McCann's Irish Oatmeal business from Treehouse Foods Inc.