Grocery aisle relief as food prices fall

Grocery shoppers are finally seeing some reprieve from last year's steep price increases.

Food prices are dropping on some key items as retailers slash prices to better compete and food makers do more promotions and pass along savings from lower ingredient and gasoline costs.

It's welcome relief for American consumers who are looking to save money as they cope with stagnant incomes, job loss and economic uncertainty.

Prices for dairy, meat, fruits, vegetables and bread have all fallen.

A Labor Department price index of food sold to be eaten at home fell for the seventh time in eight months in July. The index, which is part of the Consumer Price Index, fell 0.5 percent in the most recent month and is down 0.9 percent in the past 12 months.

In fact, overall food prices — what's sold in groceries and in restaurants — haven't risen on a monthly basis since November 2008.

Still, that doesn't make up for the surge in food prices from last year, when costs for ingredients like wheat and corn and fuel costs for transportation soared to record highs. Food makers raised their prices and some even shrank package sizes to protect their profits. CPI's food-at-home index finished last year up 6.7 percent, so the less than 1 percent drop so far this year doesn't erase that.

But ingredient costs for major food makers, including Heinz, Kraft and Hormel, are down about 28 percent on average as of Sept. 1, from the same time last year, according to Jonathan Feeney, food analyst for Janney Montgomery Scott.

That means the food industry now has room to give back some of those price hikes — and feed the frugal consumer who is using more coupons, buying more store brands and switching to discounters to stretch a budget.

Consumers' demand to save money is pressuring retailers and manufacturers to cut everyday prices and boost promotions throughout their stores.

"The consumer really is very much in charge of the effort," said Herb Walter, a partner with PricewaterhouseCoopers. "They're picking the price points they want and when they want it."

Safeway Inc. recently announced lower prices on milk, eggs, cheese and other basic items. Whole Foods Market Inc. says low prices on produce, such as organic berries, has meant significant savings for shoppers.

And Costco Wholesale Corp., which aims to be the first of its peers to lower prices and last to raise them, says prices are down on items from paper towels to prime-cut meat.