Grocery inflation slowed significantly in August, which offers some relief to shoppers after years of elevated food prices, but rising costs for transportation and other supply-chain inputs could increases prices again later this year, according to a recent FMI – The Food Industry Association briefing.
August brought some relief for shoppers, as food-at-home inflation was flat month over month after declining 0.1% in July. Year-over-year food-at-home inflation slowed to 2.2% in August, according to CPI data. While recent inflation data has been reassuring, many cost pressures are still working through the food supply chain, according to Ricky Volpe, professor of agribusiness at Cal Poly.
Food prices are expected to rise in the coming months, which Volpe attributes to tariffs and trade disruptions, input costs like fertilizer tied to earlier supply chain and geopolitical disruptions, diesel, transportation and storage costs. Further, lower projected corn yields and higher corn prices are also expected to increase costs.
“There is a delayed effect. It takes time for those higher corn prices to translate into higher wholesale prices, which then become higher retail prices,” Volpe said.
Retailers say thin margins leave little room to offset higher grocery costs
Retailers say they don’t have much room to absorb future cost increases. According to FMI, food-at-home prices are up more than 30% since 2020 and grocery retailers averaged only 2.3% profit margins in that period.
“Given that we’re talking about manufacturers and retailers that have likely been trying to constrain their prices throughout 2026 on already thin margins, I expect that something’s going to give fairly soon,” Volpe noted.
Yet, consumers are still worried about affording groceries. More than half (68%) are highly concerned about food prices and 70% say their income has fallen behind inflation, according to FMI.
Some cities are addressing rising food costs through government subsidies. Earlier this summer, New York City Mayor Zohran Mamdani announced the city’s $70 million public grocery pilot across five grocery stores, beginning in East Harlem in 2027. The initiative will subsidize core basket items like meat, dairy and produce at a 30% discount with prices remaining fixed for a month before resetting.
Discounted food items in these stores could impact neighboring businesses offering lower prices. Last month, the Multicultural Business Association and other merchant groups sued the Mamdani administration alleging unfair competition and predatory pricing.
Yet consumers are looking to grocery shopping as the most economical way to save money versus eating at restaurants, per FMI. More consumers report cooking at home and looking to loyalty programs and discounts to help with their food budgets, according to FMI.
