Chattanooga: Why aren’t grocery costs falling?

Chattanooga resident Sue Powers shops several times each week to feed her family — which includes a 17-year-old son who drinks a lot of milk.

But as Mrs. Powers watched area gas prices fall from above $4 a gallon in September to around $2 a gallon, she wonders why she hasn’t seen the same drop in the price she is paying for the gallons of milk she buys each week.

“It’s curious how it seems to pop up so quickly, but then it comes down so slowly,” she said.

Unfortunately for consumers, there are reasons that price declines at the pump haven’t kept pace with those in the grocery aisle, said Ephraim Leibtag, chief economist for the Economic Research Council of the U.S. Department of Agriculture.

More time needs to pass before consumers see the benefit of low gas prices, but that is not the only factor affecting prices in the store, Mr. Leibtag said.

Commodity prices account for about 20 percent on average of the cost of food items in the grocery store, he said.

Recent fluctuations in prices also have affected the sentiment among grocery retailers, who may be hesitant to drop prices for fear commodity prices could shoot up again.

“The real drop in gas prices, commodity prices, just happened in the last two months, and it usually takes about three to six months for things to work through the system,” he said. “We don’t know if these commodities are dropping for good, for six months, for a year, for five years or for just two weeks.”

Groceries purchased by the Times Free Press to measure the cost of basic food items over time showed the price for a gallon of milk fell 30 cents from October to November, while chicken breasts rose almost $2 a pound over the same period. All other items purchased this month — including rice, bread, bananas, eggs and baby formula — have remained steady since October. The price of milk has dropped 50 cents since peaking at $5.49 a gallon in July and August.

Mr. Leibtag warned, however, these declines may not be here to stay.

“Things can turn around rather quickly in a commodity market,” he said. “We saw things rise really quickly earlier this year,... but I think a lot of retailers might also be unsure as to the long term cost issues and because of that they might not be so interested in dropping things very quickly if they have to go raise them again in six weeks or six months.”

Some items directly tied to commodity prices such as corn and other grains could begin to decline in the next three to six months and a drop could be felt eventually if commodity prices stayed low for six months to a year.

Beyond those fluctuations in commodity prices are changing costs for feed, weather conditions, and supply and demand, said Brenda Reid, spokeswoman for Publix Supermarkets.

Those are the types of issues considered when pricing a can of beans or a 12-pound turkey, she said.

“While fuel prices are a factor in the pricing of groceries, it's difficult to attribute fuel prices as a single reason why the price of an item changes,” Ms. Reid said.

At Greenlife Grocery, any decline their distributors are seeing resulting from the drop in gas prices is not being passed on to them. The North Shore health food store brings in thousands of specialty items shipped directly from manufacturers of all different sizes.

Many of those items are delivered using services such as UPS and FedEx, and can cost in excess of $400 for one shipment, said store manager Tammy Grafe. The store still pays surcharges of $10 to $20 a truckload that were put in place earlier in the year.

“It’s expensive, it really is,” Ms. Grafe said.

Despite the source of the increased prices, consumers like Mrs. Powers and her family are the ones who ultimately pay.

The family has seen some relief from the lower gas prices, and they are not taking it for granted, she said.

“It’s all great,” she said. “But you just wonder if it’s happening too late for some people.”