Everyone eats. As a result, everyone is affected to some degree by food price changes. This makes understanding food price changes and their effects on consumers an important matter for Congress. This report provides information on the current status and outlook for U.S. food prices, measuring their changes and how such changes relate to U.S. consumers. The first section of the report, " Consumer Demand ," briefly reviews the major economic concepts underlying consumer food behavior. The second section, " The Consumer Price Index (CPI) ," describes how U.S. food price inflation rates have evolved since 1915, when federal price data collection for inflation-measuring purposes began. The third section, " Consumer Income and Expenditures ," provides information on recent history and projections for U.S. food expenditure shares relative to total household budget, with comparisons across income quintiles, as well as internationally. The fourth section, " Recent Food Price Inflation ," examines retail food price inflation, including a review and discussion of the level of food price inflation registered by the consumer price index for all-food, at-home-food, and away-from-home-food purchases as well as for major food groups. Finally, a fifth section, entitled " Effect of Retail Price Changes ," briefly discusses the impact that rapid food price inflation can have on government food programs and the more vulnerable consumer groups. Each section may be read independently of the others. Thus, those readers that are concerned primarily with the current status of U.S. retail food price inflation may proceed directly to the sections entitled " Historic Price Inflation Patterns ," " Recent Food Price Inflation ," or " Effect of Retail Price Changes ." Consumer demand is influenced by economic factors—own-price, the price of close substitutes, the price of complementary items, and household income—as well as by several non-economic factors including tastes and preferences, family size, age of family members, geographic location, shopping behavior, and lifestyle choices. Economists attempt to study and measure the nature of consumer behavior in response to changes in prices, incomes, and household characteristics, with an eye for understanding the potential social welfare outcomes that may result from price and income changes across different socioeconomic groups. Policymakers, in turn, often attempt to use that information to design and implement policies that mitigate the more deleterious effects of price and income changes on consumers. In general, consumers will use less of any good if its price increases relative to other goods (referred to as the pure "substitution effect" by economists). However, a consumer's price responsiveness is a matter of degree and is subject to the potential influence of disposable income as well as other non-price factors such as those listed in the preceding paragraph. Under most circumstances, the availability of many close substitutes is likely to make consumers more sensitive or responsive to price changes, because they have the opportunity to switch to similar alternatives. In contrast, a lack of substitutes may give the consumer little choice but to continue to purchase the available good, even as its price rises, especially if it is deemed a necessity. Strong ethnic or cultural tastes and preferences may endear a person to a particular food type such that he or she will continue to purchase that food as its price rises even in the presence of abundant substitutes (for example, ethnic groups that are accustomed to eating rice at every meal may be reluctant to switch to bread or potatoes even if the price of rice rises relative to those other foods). Rapid or unexpected changes in retail food prices will impact some consumers more than others depending on income levels and the importance of the affected food items in consumers' budgets. In general, if an item represents a very small portion of the consumer's budget (for example, consider salt), then a consumer is less likely to respond to a price change. For the average American consumer, basic food staples such as bread, potatoes, pasta, and rice tend to take smaller shares of the food budget (relative to meat, dairy products, fruits and vegetables, and more processed food products), and, as a result, consumers are less responsive to a change in their price. In contrast, high-valued food items such as expensive cuts of meat or seafood probably represent more costly (and infrequently purchased) delicacies for most households. As a result, most households will tend to be far more responsive to changes in the prices of such high-valued products than for basic staples. Often a price change for an item within a specific food group may result in consumers switching to lower-quality items within that food category—the classic example being a switch from steak to hamburger when meat prices rise. In contrast, a widespread price rise across all food groups may engender substantial reshuffling of consumer food budget allocations as households try to meet their nutritional goals with their limited budgets. Of course, the absolute size of a consumer's disposable income is also important in determining actual purchasing power. For households with smaller incomes, the food budget itself is likely a larger portion of total household expenditures, and such households are likely to be more responsive to price changes across all food categories than are higher-income households. In summary, lower-income consumers who spend a significant share of their household budget on food are likely to be impacted more severely by rising food prices (and are likely to be more responsive to price changes) than high-income consumers with lower food budget shares. A household's absolute level of disposable income (and, to a lesser degree, wealth) directly affects its ability to respond to price changes. As a result, as household incomes grow, consumers often opt for more expensive or higher-quality selections of foods than are presently in their food budget, or may experiment by trying new or unfamiliar foods. For example, as incomes increase in less-developed countries, it is common to see per-capita expenditures on meat and dairy products increase. In contrast, when incomes decline, consumers tend to pull back from more expensive options. If the income decline is severe and is perceived as permanent or long-lasting, consumers may make substantial changes to their food budget choices. In the aggregate, household consumption behavior in response to perceived income changes (if persistent and widespread) may affect a country's agricultural production or trade patterns, or it may impact the health and nutritional status of certain segments of the population. As a result, it is important for policymakers to monitor household wealth and income levels and distribution for unexpected shifts that may have important economic or health consequences. Economists call the relationship between changes in consumer income and the quantity of an item purchased an Engel curve . This relationship is used by economists to classify goods. For a normal good , consumers buy more of it as incomes increase, but at a decreasing rate such that its average budget share declines at higher income levels. For a luxury good , consumers buy more of it as their incomes increase and at an increasing rate such that its budget share increases at higher income levels. For an inferior good , consumers buy less of it as their incomes increase. Non-economic factors such as cultural or ethnic preferences may determine both the share of a particular food product in the household's budget (e.g., rice represents a larger share of per-capita expenditure in most Asian households than in most European households at similar income levels) as well as a household's responsiveness to a change in the price of a particular product. Dietary needs also change with age and gender. For example, young children and adolescents generally need both more calories and a higher portion of protein-based calories to meet nutritional demands of rapid physical growth and high activity levels. Populations or households with a large share of individuals from this demographic stratum are more likely to consume larger per-capita portions of meat and dairy products than an older, more mature and sedentary population would. As a result, population demographics such as household composition, size, and age structure often play an important role in consumer price sensitivity and income responsiveness. Shopping behavior—for example, impulse purchases, quick-stop shopping at convenience stores to and from work, or weekend shopping at big-box discount stores—can influence the food choices as well as the average per-item prices paid by a household. Also, a household's geographic location—for example, inner city, suburbs, or rural areas—may restrict both a consumer's selection of goods and the price range paid for them. Finally, in increasingly affluent societies, lifestyle choices—for example, frequency of dining out, meal choices, etc.—when complemented with sufficient purchasing power, can also play an influential role in household food purchases. For households with low disposable income levels where food expenditures are a large share of the budget, rising food prices result in greater responsiveness and may force more difficult budgetary tradeoffs than in higher-income households with smaller food-budget shares. Of course the opposite effect is true during periods of falling prices. However, each household's price and income effects also are influenced by its particular set of non-economic characteristics. The CPI is perhaps the most widely reported measure of U.S. price inflation. The CPI is used both as an economic indicator of retail price inflation and as a means of adjusting current-period values for inflation. The "All-Items" CPI is the index most often referred to (i.e., the headline CPI) for representing consumer price inflation. It is generally divided into eight major spending categories, including a "Food and Beverage" category comprising 15.3% of the overall index. The CPI category of "Food and Beverages" is composed of two major subcategories: "All-Food" (which has a relative weight of 14.3% in the all-items CPI) and "Alcoholic Beverages" (1.0%). The All-Food CPI is the principal indicator of consumer food price changes ( Figure 1 ).