Agflation Set to Decelerate in 2024 as the US Anticipates Lowest Annual Grocery Price Inflation Rate in Five Years

Other Frozen Pork Cuts
United States
Chicken Egg
Published Aug 4, 2023
The global commodities market has faced challenges with agflation due to rising freight and fertilizer prices, worsened by conflicts, disease outbreaks, and weather concerns. However, a positive shift is predicted in 2024 as input costs recover, with a modest 0.9% increase in grocery prices forecasted. The significant rise in grocery prices observed in 2022 is expected to stabilize, and prices for eggs, pork, and dairy are projected to fall in 2024. The softening of freight and fertilizer prices is a key driver for the anticipated deceleration of food inflation. The reduced freight costs may offer relief to the commodities market. The projected deceleration of grocery price inflation is expected to increase consumer spending and improve profit margins for producers, benefiting the entire agricultural sector. Additionally, countries with significant agricultural trade, like the US, Brazil, and Argentina, may experience impacts on their trade dynamics. Overall, the deceleration holds the potential to create a more stable and prosperous environment for both consumers and the agricultural industry.

In recent years, the global commodities market has been plagued by agflation, primarily driven by rising freight and fertilizer prices. The growing conflict in the Black Sea region, disease outbreaks, and weather concerns in major producing countries further exacerbate this trend. However, a positive shift is expected in 2024 as input costs and freight prices continue to recover. The government's first forecast for 2024 food costs predicts a modest increase of 0.9% in grocery prices next year. If this prediction holds, it would be the lowest annual grocery inflation rate in five years, marking a welcome end to the era of high food inflation. Additionally, the United States Department of Agriculture (USDA) has been consistently lowering its forecast for grocery price inflation for this year, with the latest figure at 4.9%, a significant drop from the 8.6% forecast at the beginning of the year.

Source: Tridge, U.S. Bureau of Labor Statistics

The sharp increase in grocery prices was observed in 2022, with a rise of 11.4% – the largest in half a century. Several categories experienced double-digit increases, including poultry, fats and oils, sugar and sweets, cereal and bakery products, and processed fruits and vegetables. Eggs, in particular, saw a staggering 32% increase, partly due to an outbreak of bird flu. However, pork, egg, and dairy prices are expected to fall significantly in 2024.Eggs, in particular, are projected to decrease by 11%, while the prices of fresh fruits and vegetables are expected to remain stable.

Several factors contribute to the expected food inflation deceleration in 2024, with the most significant being the softening of freight and fertilizer prices. The bullish trend in fertilizer costs shifted in 2023, with Urea, DAP, and MOP experiencing a decline. The current US spot prices for Urea, DAP, and MOP have significantly dropped compared to the previous month and year. For instance, the US Urea spot price now stands at USD 231.48, reflecting a 12.11% MoM decrease and 58.84% drop from one year ago. Similarly, the US DAP Export Spot Price is now at USD 507.07, down 15.96% from last month and 39.94% lower than one year ago. The MOP Spot Price currently sits at USD 328.00, witnessing an 11.95% decrease from last month and a 70.23% YoY decline.

Source: Tridge, World Bank

Furthermore, as of Jun-23, the global freight rate index stood at approximately USD 1,500, signaling a more balanced and stable market environment. This figure represents a significant 78.8% decline from the levels observed in Jun-22, marking the lowest rate since Apr-20. These positive developments offer a glimmer of hope for the food and commodities market, potentially leading to some relief in the coming months. The reduction in freight costs can have a positive impact on the supply chain and may contribute to alleviating some of the pressures that have been affecting the global commodities market.

Source: Tridge, Statista

The projected deceleration of grocery price inflation is poised to significantly affect the market. One of the primary impacts is expected to be an increase in consumer spending as prices stabilize and consumers regain purchasing power. Previously, hyperinflation had led to softened spending on products like orange juice, meat, and eggs, but with improved affordability projected in 2024, consumer spending on grocery items may rise.

Driven by lower freight and fertilizer prices, the softening of production costs will likely lead to improved profit margins for producers. This benefit extends to the entire agricultural sector, as stable and predictable prices enable industry players to make informed decisions about production plans. Moreover, businesses heavily reliant on food and grocery items, such as supermarkets and grocery stores, will benefit from better budget planning and reduced risk of cost spikes, enhancing their overall financial stability.

Countries, such as the US, Brazil, and Argentina, with significant agricultural trade will also experience impacts from changes in grocery price inflation. For instance, the US may see increased competitiveness in the international market as lower inflation rates make their goods more attractive for export. Simultaneously, lower import prices resulting from reduced inflation can provide US consumers access to more affordable food products, contributing to a positive effect on their domestic economy. Overall, the deceleration of grocery price inflation holds the potential to create a more stable and prosperous environment for both consumers and the agricultural industry.

In conclusion, the deceleration of grocery price inflation in 2024 is expected to boost consumer spending, improve profit margins for producers, and stabilize the agricultural sector. It may also impact trade dynamics, making exports more competitive while providing consumers with more affordable food products.

For further reading, follow the links below:

1. Webinar Recap: The Effect of Rising Input Costs in the Agriculture Industry

2. The Cost of Breakfast Rises to Record Levels as Food Inflation Persists in the US and the EU

3. The Impact of the Worsening Bird Flu Crisis on Global Markets

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