Brief: Food producers bearing brunt of rising costs vs energy sector as inflation rages on – report

• US food producers are absorbing more costs related to inflation than US consumers, according to new research from B2B software company Vendavo. 
• That’s in contrast to the energy sector where utilities companies are passing costs down to the consumer.
• Of the industries covered in Vendavo’s research, food saw the second-largest discrepancy between consumer and producer price indexes after a spike in the latter at the end of 2021. 

Why it matters:

Inflation in the US has climbed to a 40-year high, reaching 8.3% for the first time since 1981 and sending the price of food, fuel, and other goods skyrocketing.

To better understand who shoulders the cost of this, Vendavo’s research compared the Consumer Price Index (CPI) and the Producer Price Index (PPI) over a six-month period to see monthly percentage changes for consumer products like food and utilities such as energy.

Perhaps unsurprisingly, consumers bear the brunt of inflation when it comes to energy, according to the research. Production prices began increasing in January of 2022 for a variety of reasons including supply chain and labor issues as well as greater demand. By March — just after Russia invaded Ukraine — costs shifted to consumers, with the CPI overtaking the PPI for the first time this year and resulting in a 5.3 difference between the two.

It’s a different story in the food world. Food producer costs were 1.4% higher than consumer costs in the US as of March 2022, according to Vendavo’s research. Supply chain issues initially triggered by Covid-19, surging demand, and now war in Ukraine, are all pushing costs up. This instability leaves pricing teams juggling the problem of holding their bottom line without alienating consumers with steep price hikes.  

Proactive pricing strategies and optimization, and lots of data are solutions businesses must turn to during this time, according to the research. (Obviously Vendavo has some skin in the game, being a pricing software company.)

Speaking to AFN about inflation last month, Emma Weston, co-founder and CEO at online grain management platform AgriDigital, noted that the current situation is “the perfect opportunity for all types of players in supply chains to think about their cost base [and] not having a lazy supply chain, but an actively-managed supply chain.”

In the US, at least, forecasters believe inflation has peaked but will remain at 6.3% through the end of 2022.