Food-Price Inflation Isn’t Going Away. It’s More Than Tariffs.

The price of fresh fruits and vegetables rose 2% last month, according to the latest consumer-price-index report. (Joe Raedle/Getty Images)

Key Points

About This Summary

• Grocery prices rose 0.6% in August, the largest monthly increase in nearly three years, with costs up in every grocery-store food group.
• Produce and meat drove much of the increase, with fresh fruits and vegetables rising 2% and beef and coffee up 2.7% and 3.6%, respectively.
• Higher tariffs, labor shortages, elevated transportation expenses, and weather events are expected to keep food costs high.

The crisp morning air heralds the inevitable end for the two tomato plants on my fire escape. But four of my prized Atlas Hybrids are still ripening, which means I’ll escape the tomato-price inflation that helped boost the latest consumer-price-index reading, if only for a meal or two.

Tomatoes aren’t the only food that cost more in August, according to the Bureau of Labor Statistics. Grocery prices, as measured by the food-at-home subindex of the CPI, rose 0.6% in the month, the largest monthly increase in nearly three years. Costs were up in every grocery-store food group tracked in the CPI, and there is little reason to expect the forces driving prices higher will abate soon.

Produce and meat drove much of the latest pop, followed by beverages. Fresh fruits and vegetables rose 2% last month in the aggregate, with prices for apples and lettuce up 3.5%, according to the latest reading, released Thursday. Tomato prices jumped 4.5%, after posting a monthly gain of 3.3% in July.

Beef and coffee extended a multi-month price sprint, up 2.7% and 3.6%, respectively, with coffee prices 21% higher year over year. The brightest spot in the subindex? Egg prices were unchanged in August relative to July.

Cooks and shoppers can blame the higher tariffs implemented by the Trump administration for helping to push up food costs, both directly and indirectly. The U.S. imports more agricultural goods than it exports, with Mexico and Canada accounting for the largest share of such imports.

Imports from Mexico and Canada are exempt from tariffs, provided they comply with the U.S.-Mexico-Canada Agreement. But the European Union and ​​South America, led by Brazil, are also major sources of food imports, according to data from the U.S. Department of Agriculture.

Bananas, for example, aren’t widely produced domestically. Prices rose 2.1% in August and 6.6% on an annual basis. “We import many fruits, vegetables, coffee products, and other food products, so putting tariffs on them does nothing except increase the cost for consumers,” says Gregory Daco, chief economist at EY-Parthenon.

Food-production costs are also spurring price hikes. “Tariffs are a factor, but they are only one piece of the puzzle,” says Joe Hannon, a veteran of the restaurant industry and general manager of inventory and purchasing at Restaurant365, a provider of restaurant management software. “Food costs are also climbing because of labor shortages in production and distribution, elevated transportation expenses, and weather events that disrupt harvests and livestock production.”

Supply chains have become even less predictable lately, given shifting consumer demand and tariff pressures, Hannon says. That has hurt food sellers’ profit margins, which are already notoriously thin.

Farmers’ costs are rising as well, which feeds into wholesale and retail food prices. “Labor costs and worker shortages are likely to have risen, given stronger immigration enforcement,” says Conrad DeQuadros, senior economic advisor at Brean Capital.

Roughly 40% of agricultural workers in the U.S. are undocumented, making the sector vulnerable to the immigration curbs enacted by the Trump administration. Worksite immigration raids have already disrupted production at farms across the country this year.

Beyond human capital, fertilizer costs are rising sharply. They showed a gain of 9.2% year over year in August, according to the latest producer-price-index data. DeQuadros says fertilizer imports of potash from Canada are largely exempt from tariffs, but levies could be placed on other non-USMCA fertilizer components, likely contributing to the price rise.

The issues driving food-price inflation are expected to persist, signaling higher food costs could be with us for the foreseeable future. That is bad news for Americans’ grocery budgets, and a good reason to water my tomatoes.

Write to Megan Leonhardt at megan.leonhardt@barrons.com