August’s flat food-at-home CPI certainly looks like good news on the surface. But I think it’s also giving the food trade and its consumers a dangerously incomplete picture of what’s coming next.
The Consumer Price Index showed no monthly increase in grocery prices during August. Annual food-at-home inflation slowed to 2.2% from 2.7% in July. After several years of price shocks, that is the sort of number everyone – from the White House to your house – wants to see.
But of course the shelf is the last stop in the food supply chain, not the first.
By the time a higher cost appears in the CPI, it has already filtered through some combination of farms, processors, manufacturers, warehouses, transportation networks, distributors and retailers. From where I’m standing, one of the most important (and alarming) takeaways from FMI’s Sept. 17 briefing is that several cost “spikes” are currently moving through that system. You know it, I know it, but the average consumer has no idea… yet.
Food Prices: Here’s What’s Coming Next
Cal Poly associate professor of agri-business Dr. Ricky Volpe identified higher diesel, crude oil, industrial-electricity, long-haul trucking, warehousing and cold-storage costs among the pressures accumulating upstream.
These unwelcome guests won’t all show up at the party together.
Higher diesel prices boost the cost of moving food from a distribution center to a store within weeks. Warehousing and refrigerated-storage expenses take a bit longer because they affect inventory that hasn’t yet reached the shelf. Higher farm, fertilizer, harvesting and manufacturing costs can remain in-pipeline for months.
And from a customer standpoint, that’s one of the most maddening features of food inflation: Retail prices can continue rising long after the geopolitical crisis, commodity or energy shock that caused them has disappeared from headlines.
A diesel-price increase won’t back out of the food system the moment diesel begins getting cheaper. A refrigerated product may already have accumulated higher harvesting, processing, storage and transportation expenses before it reaches a retailer. Each business in that chain must eventually reckon with those costs and decide just how much to pass along.
Falling and Rising Food Prices Can Coexist
Field corn is a classic example. It’s in almost everything; directly or indirectly involved in much of the supermarket. It becomes animal feed, sweeteners, starches, preservatives, oils and ethanol. That means its cost has plenty of entry points for meat, dairy, snacks, beverages and other categories.
As we know, higher corn prices on Sept. 18 don’t mean more expensive tortillas on Sept. 20; farmers first absorb higher costs for fertilizer, fuel, water and other inputs. The crop must then be harvested, stored, transported, processed and sold to manufacturers. Manufacturers may be operating under contracts negotiated months earlier. Retailers may already have promotional plans or pricing commitments in place. The entire journey can take six, nine, even 12 months.
That means falling corn prices and rising supermarket prices can coexist without contradiction or tension.
This also explains why one cooler CPI report is by no means an all-clear signal.
The Industry Is Trying for Lower Food Prices
August’s flat number was helped a lot by lower fruit and vegetable prices. Other categories indeed increased. So your average grocery shopper may have experienced something very different depending on what went into their basket.
The larger concern is whether food companies have been temporarily suppressing increases.
FMI says food retailers have averaged a net profit margin of 2.3% since January 2020, a period during which food-at-home prices increased more than 30%. Volpe said retailers and manufacturers appear to have made deliberate efforts to keep prices down during 2026 in response to consumer pressure and competition.
From a consumer standpoint, that’s admirable restraint. Inside the industry, though, we know that can’t last forever. A retailer can accept a smaller margin or a manufacturer can delay an increase, or suppliers can absorb part of a fuel surcharge. Even promotional spending can soften what consumers see… for a while.
But the economics are brutal; the underlying cost must be absorbed somewhere. If every participant in the system is already operating with limited room, the shelf price becomes increasingly difficult to protect.
Some critical context: None of this should be taken to mean grocery inflation is on its way back to its post-pandemic peak. Volpe was explicit that he does not expect that kind of increase.
But it does mean the industry should prepare for a less-than-comfortable fourth quarter – definitely tighter than the August CPI would suggest. Volpe believes food inflation will accelerate through the end of the year and said Q4 could become the most inflationary quarter of 2026.
For now, the numbers look pretty calm… but the costs headed straight for them definitely don’t.