Using ERS Food Price Forecasts to Estimate 

Food Expenditures for American 

Households

Annemarie Kuhns 

Economic Research Service, USDA 

Food Markets Branch 

Food Economics Division 
Agenda 

• Introduction 

• Overview of retail food price inflation 

• Forecasting methodology 

• Application of forecast 

• Concluding remarks 
Understanding Food Price Inflation 

• The average share of income spent on food in 

2012 was 12.8% according to the BLS’ 

Consumer Expenditure Survey (CE) 

• Retail food prices have been volatile for the 

past 6 years 

• Retail food prices have increased more relative 

to other CPI categories 
12-Month Percent Change in CPI 

Over Time By Category

-10.0 

-8.0 

-6.0 

-4.0 

-2.0 

0.0 

2.0 

4.0 

6.0 

8.0 

10.0 

12.0 

1985 1990 1995 2000 2005 2010

Percent Change 

CPI - All Items Food 

Housing Transportation 

Apparel Medical 

Line A 

Source: BLS, CPI (1985 - 2012)
Price Transmission Pathway From 

Farm to Retail 

• Price transmission refers to the measurement 

of the effect of prices in one market on prices 

in another market 

• Food prices are affected by commodity prices, 

fuel prices, and surging global demand 

• Timing and magnitude of price transmission 

between the stages of production varies 
12-Month Percent Change in Price 

By Stage of Production

-20.0 

-15.0 

-10.0 

-5.0 

0.0 

5.0 

10.0 

15.0 

20.0 

25.0 

30.0 

Percent Change 

1984 1989 1994 1999 2004 2009

PPI - Farm Products 

PPI - Processed Food and Feed 

CPI - Food 

Source: BLS PPI and CPI Data , 1984 - 2012
Monthly Percentage Change, 2012

-3.0 

-2.0 

-1.0 

0.0 

1.0 

2.0 

3.0 

4.0 

5.0 

6.0 

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 

Percent Change 

PPI - Farm Products 

PPI - Processed Foods 

and Feeds 

CPI - Food 

Source: BLS CPI and PPI, 2012 
Effect of Input Prices on the Stages 

of Production 

Many input factors contribute to prices paid for 

food in the supermarket 

• 11 cents on the retail food dollar goes directly 

to the farm through the sale of commodities 

• Food processing accounts for another 22 cents 

on the dollar 

• Transportation and retail costs also play a role 
Where a Dollar Spent on Food Goes

31

12

4 6 5 

11

22

9 

Food Services 

Retail Trade 

Packaging 

Finance and Insurance 

Advertising, Legal, and 

Accounting 

Farm and Agribusiness 

Food Processing 

Energy and Transportation 

Source: ERS Food Dollar Series, 2011 
Forecasting Framework 

• Retail prices are dependent on farm and food 

processing prices 

• Multi-stage pass through approach is used 

– First Stage: Forecast PPI farm and wholesale 

prices 

– Second Stage: Forecast CPI using forecasted PPI 

data 
First Stage of Pass-Through Model 

PPI Forecasts 

Diesel and 

Electricity 

PPI

Historic 

PPI Data 

MTED* 

Farm 

Forecasts 

*The Market and Trade Economics Division (MTED) branch of Animal Products and Cost of Production 

produces commodity forecasts on a quarterly and monthly basis. 
Second Stage of Pass-Through 

Model 

CPI Forecasts 

Wage and 

Diesel PPI 

Historic 

CPI Data 

PPI 

Forecasts 
Underlying Framework for Food 

Price Forecasting at ERS 

• Error Correction Model (ECM): two step 

method 

– Stationarity and cointegration 

– Estimating the cointegrating vector 

• Establishing a lag structure 

• Test for structural breaks 

• Locally weighted scatterplot smoothing 

(LOWESS) technique 

– Converts quarterly data to a monthly frequency 
Output from Forecasts at ERS 

Food Outlook Topic Page updated on the 25th of 

each month 

• Analysis of the most recent month of CPI data 

– Focusing on key month-over-month and year-overover changes 

• Annual forecasts, portraying average year-overyear price changes 

– Relying on non-adjusted CPI data 

– Revisions are made as new data becomes available 
15

Item 

Relative Month-to-Month Year-over-Year Annual Annual Forecast Forecast 

 importance1

July 2013 to Aug 

2013

Aug 2012 to Aug 

2013

2011 2012 2013 2014

Consumer Price Indexes Percent Percent change 

All food 100 0.2 1.4 3.7 2.6 1.5 to 2.5 2.5 to 3.5 

 

 Food away from home 39.9 0.2 2 2.3 2.8 2.0 to 3.0 2.5 to 3.5 

 

 Food at home 60.1 0.2 1 4.8 2.5 1.0 to 2.0 2.5 to 3.5 

 Meats, poultry, and fish 12.9 0.7 2.2 7.4 3.6 1.5 to 2.5 2.5 to 3.5 

 Meats 8.3 0.6 1.3 8.8 3.4 1.0 to 2.0 2.5 to 3.5 

 Beef and Veal 3.9 -0.1 1.6 10.2 6.4 2.0 to 3.0 2.5 to 3.5 

 Pork 2.5 1.4 1.7 8.5 0.3 0.5 to 1.5 2.0 to 3.0 

 Other meats 1.9 0.9 -0.1 6.4 1.7 -0.5 to 0.5 2.0 to 3.0 

 Poultry 2.4 1.4 5.5 2.9 5.5 3.5 to 4.5 3.0 to 4.0 

 Fish and seafood 2.1 0.5 3 7.1 2.4 2.0 to 3.0 2.5 to 3.5 

 Eggs 0.8 0.3 -1 9.2 3.2 2.0 to 3.0 2.0 to 3.0 

 Dairy products 6.3 0.4 1 6.8 2.1 0.0 to 1.0 2.5 to 3.5 

 Fats and oils 1.8 0.3 -1.1 9.3 6.1 -1.0 to 0.0 1.5 to 2.5 

 Fruits and vegetables 9 1 3.6 4.1 -0.6 2.0 to 3.0 2.5 to 3.5 

 Fresh fruits & vegetables 6.9 1.5 4.5 4.5 -2 2.5 to 3.5 2.5 to 3.5 

 Fresh fruits 3.7 0.6 1.4 3.3 1 2.0 to 3.0 2.5 to 3.5 

 Fresh vegetables 3.2 2.4 8.1 5.6 -5.1 2.5 to 3.5 2.0 to 3.0 

 Processed fruits & vegetables 2.1 -0.3 0.7 2.9 3.8 1.0 to 2.0 2.5 to 3.5 

 Sugar and sweets 2.1 -1.1 -2.7 3.3 3.3 -2.0 to -1.0 2.0 to 3.0 

 Cereals and bakery products 8.6 0 1.3 3.9 2.8 1.5 to 2.5 2.0 to 3.0 

 Nonalcoholic beverages 6.6 0.3 -1 3.2 1.1 -1.0 to 0.0 2.5 to 3.5 

 Other foods 12 -0.9 -0.4 2.3 3.5 0.0 to 1.0 2.0 to 3.0 
September 2013 ERS Forecasts 

Item 

Month-to-Month Year-over-Year Forecast 

July 2013 to Aug 2013 Aug 2012 to Aug 2013 2013

Consumer Price Indexes Percent change 

All food 0.2 1.4 1.5 to 2.5 

 

 Food at home 0.2 1 1.0 to 2.0 

 Meats, poultry, and fish 0.7 2.2 1.5 to 2.5 

 Fruits and vegetables 1 3.6 2.0 to 3.0 

Source: ERS Food Outlook, September 2013 
Food Acquisition by Income Level 

• According to the CE, the lowest income 

households spend between 9.9% to 11.3% of 

their income on food-at-home 

• Those earning over $70K spent an average of 

6.5% of their income on food-at-home 

• Due to consumption patterns, increases in certain 

food categories have a greater impact on lower 

income households 

– Meats, Poultry, Fish, and Eggs 

– Fruits and Vegetables 
Food Spending At Home

By Percentage of Income and Income Level 

.0

2.0 

4.0 

6.0 

8.0 

10.0 

12.0 

Less than $5K $5K to $10K $10K to $15K $15K to $20K $20K to $30K $30K to $40K $40K to $50K $50K to $70K Over $70K 

% of Income 

Income Level 

FAH 

Source: BLS Consumer Expenditure Survey, 2012

11.3%

6.5%
2012 Food-at-home Expenditures (%) 

By Income Level and Food Category

2.2

2.8 2.6 2.3 2.0 2.1 1.9 1.7 1.4

1.8

1.9 2.0 2.0

1.7 1.7 1.6

1.4

1.2 

.0

2.0 

4.0 

6.0 

8.0 

10.0 

12.0 

Less than $5K $5K to $10K $10K to $15K $15K to $20K $20K to $30K $30K to $40K $40K to $50K $50K to $70K Over $70K 

Percentage of Income 

Axis Title 

Cerals and Bakery Products 

Meats, Poultry, Fish, and Eggs 

Dairy Products 

Fruits and Vegetables 

Other Food-At-Home 

Source: BLS Consumer Expenditure Survey, 2012 
Call for Food Expenditure Forecasts 

by Income Level 

• The Food Marketing Institute 

recognized a need for impact 

analysis of food price inflation on 

food expenditures by income level 

• ERS Food Outlook forecasts can be 

applied to the BLS’ Coミsuマer 

Expenditure Survey to fill this need 
Integrating ERS Forecasts with BLS’ 

Consumer Expenditure Data 

• Apply expected changes to the annual food 

expenditures for households across income levels 

• Used 2013 and 2014 ERS forecasts to extend 

2012 Consumer Expenditure Survey expenditures 

• Mean forecasts are applied to each food-at-home 

category by income level to arrive at inflation 

adjusted expenditures, holding income level and 

preferences constant 
Impact of Predicted Inflation on 

2013 and 2014 Food Expenditures 

By Income Level 11.3 

6.5 

11.44 

6.6 

11.76 

6.78 

.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Less than $5K $5K to $10K $10K to $15K $15K to $20K $20K to $30K $30K to $40K $40K to $50K $50K to $70K Over $70K 

Percentage of Income 

Source: ERS calculations using BLS 2012 CE data 2012 2013 2014
Summary Results 

Holding income constant, the share of income 

spent on food from 2012 to 2014: 

• Increased for lowest income households by 

0.41 percentage points 

• Increased for households earning the highest 

salaries by 0.28 percentage points 

• The disparity was much larger during the food 

price surge of 2007 - 2008

 
Resources for Food Price Trends 

Research 

• ERS CPI Forecasts 

http://www.ers.usda.gov/data-products/food-price-outlook.aspx

• New ERS Reports 

http://www.ers.usda.gov/publications/err129/

http://www.ers.usda.gov/Publications/EIB75/

http://www.ers.usda.gov/Publications/ERR105/

• BLS CPI, PPI, and Average Price Data 

http://data.bls.gov/PDQ/outside.jsp?survey=cu

http://data.bls.gov/PDQ/outside.jsp?survey=wp

http://data.bls.gov/PDQ/outside.jsp?survey=ap

• AMS Fruit and Vegetable Report 

http://www.ams.usda.gov/mnreports/fvwretail.pdf

• IMF World Commodity Prices 

http://www.imf.org/external/np/res/commod/index.asp
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Thank you! 

Annemarie Kuhns 

amkuhns@ers.usda.gov

202-694-5351