Dive Brief:

• Food-at-home prices rose in July at a 3.6% annual pace, off from 4.7% in June, according to Consumer Price Index data published Thursday by the U.S. Bureau of Labor Statistics.
• The food-at-home index ticked up 0.3% last month compared with June, the fastest monthly rate for the gauge since February.
• Overall inflation hit an annual rate of 3.2% in July, up slightly from June, when the closely watched economic indicator dipped to 3%.

Dive Insight:

The drop in grocery inflation rate last month builds on a similar year-over-year decline in June, when the food-at-home index also shed more than 1 percentage point. The metric is now at its lowest level since August 2021 and below the 4.1% rate recorded in April 2020 as the pandemic was powering ahead.

Grocery inflation peaked at an annual rate of 13.5% last August and has rapidly lost momentum on a year-over-year basis every month since that point.

Inflation could even hit a level of zero during 2023, Ahold Delhaize President and CEO Frans Muller said Wednesday during the retailer’s second-quarter earnings call, noting that moderating inflation poses a headwind for the grocer.

While the overall pace of grocery inflation might have subsided, shoppers smarting from months of rising costs remain price-sensitive, noted Matt Pavich, senior director of strategy and innovation at Revionics, which provides technology to help retailers manage prices.

“One thing is for sure — while inflation has cooled significantly and the economy appears to be in a stronger position than previously projected, consumers are still looking for ways to stretch their spend and find good deals,” Pavich said in comments provided by email. ”This will include everything from shopping more promotions, trying new private label offerings, looking for value in bulk sizes and even switching their loyalty to retailers who offer better value.”

In an illustration of the uneven cost environment consumers face, the cost of many goods moved up in July at above the overall rate of grocery inflation. Prices for cereals and bakery products increased 7% over the past 12 months, while the nonalcoholic beverages and beverage materials category saw prices rise at a 5.4% annual pace, the BLS said.

Inflation among dairy and related products rose 1.3% over the past year, while the figure for produce was 2.9%, according to the agency. Prices for meat, poultry, fish and eggs declined 0.2% during the same period.