Kroger: Grocery prices headed higher

Grocery prices are headed higher later this year, according to the U.S.’s largest supermarket by sales. 

Cincinnati-based Kroger Co., which had $132 billion in sales last year, says inflation is running hotter than management previously anticipated and that expectations are now for prices to rise 2% to 3% over the second half of this year

Kroger is "passing along the higher cost to the customer where it makes sense to do so," said CFO Gary Millerchip on the company’s second-quarter earnings call on Friday. 

Management at Kroger rival Albertsons Companies Inc. earlier this summer expressed similar concerns that inflation would pick up in the second half of the year and that they too would pass some of those increased costs along to consumers. 

Further increases at the checkout counter would put further pressure on consumers who are already dealing with the biggest annual increase in consumer prices since August 2008.  

Within the consumer price index, the component for food at home has risen six months in a row and is up 2.6% this year.  

Half of the basket’s price increase is due to soaring prices for beef, pork and poultry. Beef prices have risen 14% this year while pork prices have jumped 12.1%, and poultry prices are higher by 6.6%.  Prices were up in five of the six major grocery store food groups in July, falling only for fruits and vegetables. The category saw prices dip 0.9% after rising 0.7% in June. 

The Federal Reserve has said the price increases that have occurred in the wake of COVID-19 are "transitory" and that those pressures will subside as the supply-chain disruptions are resolved.

The Biden administration, however, says issues the supply-chain issues caused by COVID-19 and increased demand are only partly to blame.

Instead, the administration blames what they say is a lack of competition in meat processing. 

"Just four large conglomerates control the majority of the market for each of these three products [beef, pork and poultry], and the data show that these companies have been raising prices while generating record profits during the pandemic," said National Economic Council Director Brian Deese at a press briefing on Wednesday. 

The administration is "taking bold action to enforce the antitrust laws, boost competition in meat-processing, and push back on pandemic profiteering that is hurting consumers, farmers and ranchers across the country," Deese said. 

Whether or not the administration’s efforts will rein in price gains remains to be seen.

In the meantime, customers looking for savings at the grocery store could opt for private label brands.

"If you go back to prior times when you had inflation, the customer, a lot of times, would trade over to our brands as part of their structuring their budget," Kroger CEO William McMullen said. "We're not seeing budget changes on our brands happening at this point, but I'm sure if inflation continued."

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