Food prices at the grocery store are still going up. Well, they usually go up, as explained before by Macrosight. But in March, they went up by a lot, almost 6 percent on an annualized basis. This surge occurred in spite of the fact that the all items-CPI deflated in March, while the Core CPI (which excludes food and energy) only increased by a hair (about 0.7 on an annualized basis).
How will that matter for the Fed? In a couple of weeks, the Federal Reserve’s policy committee (the “FOMC”) will meet for the third time this year. As has been the case for the past year or so the “will they or won’t they cut rates” question hangs in the air. In Macrosight’s last post, this blog suggested that the CPI’s deflation in March may nudge the Fed towards a rate cut. On the other hand, anxiety over tariffs may give them pause.
The increases in food prices thus far in 2025 may induce further hesitation for the Fed when it comes to lowering their interest rate target.
Take your Deflation and you-know-what with it
Figure 1 displays the CPI for food purchased for the home (previously discussed by Macrosight) along with the “Core” CPI (discussed in the last post). The time span shown begins in January 2021 and runs through March of this year.
The columns marked in red identify what Macrosight has previously dubbed as the “Beastflation” period (April 2021 through June 2023; monthly percentages shown are annualized). During those ghastly months, the monthly rate of increase in food prices averaged 8.2 percent. “Food prices” here represents food purchased for the home (as opposed to going out to a restaurant), and is tracked by the Bureau of Labor Statistics.1 The black solid line in Figure 4.1 represents the consumer price index for “core” consumer goods, which averaged 5.4 percent during Beastflation.2
However, over the last six months of 2023, the rate of food inflation averaged 2.3 percent. In 2024, food prices averaged 1.2 percent. The core CPI over the same time periods averaged 4.2 and 3.4 percent, respectively.
Thus far in 2025, however, food prices have jumped back up—at least in two out of the last three months. In March, food prices increased at an annualized rate of 5.8 percent, in spite of the fact that the Core CPI only increased by 0.7 percent that same month (the CPI-U deflated by 0.6 as already mentioned).
None of this is pleasing to the American Consumer, a.k.a, The Hungry Beast. But what will the Fed make of this?
Will they or won’t they?
Here are couple of ways the Fed might view the Food-price data:
The average increase so far in 2025 for this price series is more than double the average over the prior 18 months—1.6 percent from July 2023 through December 2024; 3.8 percent since this January. That certainly will catch the attention of the Fed. With concerns over the effect of Tariffs on the overall price level, the food-price surge suggests a “no rate cut” outcome at the May 7th meeting.
Yet, food prices are volatile, so maybe the March number needs to be taken with a grain of salt. Food prices only increased by a tepid 0.1 annualized percent in February, which is basically zero on a month-to-month basis. The Fed might not put too much weight on the recent month-to-month changes in food prices. That doesn’t necessarily imply they will lower their interest rate target, just that food prices may not be a factor in that decision.
Fortunately, by May 7th the Fed will likely have some insider knowledge on what the CPI for April will be—including on what happened with food prices—and they will know what happened with the PCE price index in March (which the Bureau of Economic Analysis will release the last week of April).3 As usual, dear readers, we shall see.
As defined by the BLS, the category, food at home, “refers to the total expenditures for food at grocery stores (or other food stores) and food prepared by the consumer unit on trips. It excludes the purchase of nonfood items.” In contrast, the category, food away from home, “includes all meals (breakfast and brunch, lunch, dinner and snacks and nonalcoholic beverages) including tips at fast food, take-out, delivery, concession stands, buffet and cafeteria, at full-service restaurants, and at vending machines and mobile vendors. Also included are board (including at school), meals as pay, special catered affairs, such as weddings, bar mitzvahs, and confirmations, school lunches, and meals away from home on trips.” The Macrosight post, “Let Them Eat Corn Pops” looked at this CPI along with the CPI for “food purchased at restaurants.”
The “core” CPI is meant to focus on the more stable components of consumer expenditure. The prices of food and energy are historical relatively more volatile than most consumer items. For example, the standard deviation of the CPI for all items from 2000 to 2019 equaled 3.5 percent. The standard deviation for the core CPI over the same period only equaled 0.9 percent. During Beastflation, the former’s standard deviation equaled 4.8 percent while the latter’s equaled 2.0 percent.
The CPI data for April will be released sometime during the second week of May. But the Fed officials may get that information in confidence in time for their May 7th meeting. In the least, they can rely on their own forecasts, like these ones at the Cleveland Fed.