Rising food prices cut into consumer purchases

Higher grocery prices and other increased costs have severely challenged consumer spending and squeezed household budgets. In response, consumers are trading down, cutting discretionary food purchases and adjusting their shopping behavior, while also putting less into savings — the U.S. personal savings rate was 3% in May, down from 4.5% a year earlier.

While May’s increase in the overall food price index was tepid (0.2%) compared to the previous month, according to the Bureau of Labor Statistics (BLS), this was atop a 0.5% jump in April. Grocery prices for May ticked up 0.1%, and gains were notable in beverages: coffee and tea prices climbed 1.1%, with cereals and bakery products up 0.4% and fruits and vegetables up 0.2%. Away from home, restaurant prices rose 0.3% across both fast-food and sit-down establishments. Dining out has outpaced grocery inflation, with the food away from home index up 3.5% over the year.

Year-over-year, all food prices are up 2.7% from May 2025.

In addition, price increases for beef and produce are especially notable. Over the course of 2025, tight beef supply and strong demand pushed prices up 14.7% while weather and import disruptions spiked produce prices by 6.1%. Higher oil prices because of the Iran war exacerbated the trend, as fresh food requires rapid transport and restocking.

Younger and lower-income shoppers feel the squeeze

Market research company Numerator found 4 in 10 consumers (39.7%) cite rising prices as their top concern for the year ahead. Cost pressures building across everyday goods are straining some demographics more than others, a disparity likely to persist while gas and energy prices remain elevated.

According to Progressive Grocer’s 2026 Consumer Expenditures Study (CES), Millennials and Gen Z are more likely than older generations to spend more than $200 per grocery trip. Millennials alone spend $20 more per trip than Boomers. Regardless of age demographic, lower-income households face the potential for further disruptions, including a possible cut to the fruit and vegetable allowance in the Special Supplemental Nutrition Program for Women, Infants and Children (WIC). USDA proposed SNAP restrictions earlier this year for sugary drinks and candy in 23 states. However, a federal judge blocked the move by the administration, which triggered states to begin making their own restrictions on food purchases.

The food purchase debate has been a long battle in the food and nutrition industry, but the shifting rules for retailers and consumers are creating confusion at the supermarket level and raise concerns about a potential decline in food and beverage sales. These stressors are hitting consumers as they continue to adapt to years of cumulative price increases. Grocery prices in April were roughly 26% higher than five years ago, according to BLS. Forecasts suggest food-at-home inflation could reach 3.2%-4.5% in 2026 and extend into 2027. BLS’ Producer Price Index further signals upstream cost pressures that are likely to pass through to retail prices.

Shoppers trade down as prices climb

Consumer expectations for higher prices certainly are bearing on their purchase behavior. The 2026 CES finds a third of consumers have bought fewer groceries in the past year. Three in four of all shoppers report a change in their shopping behavior due to higher prices, primarily through reducing impulse purchases, using coupons or deals, or opting for private label alternatives. In terms of the latter, the Private Label Manufacturers Association reports private label sales in 2025 increased nearly three times the rate of national brands, 3.3% vs. 1.2%. Such price-related behavior shifts come despite the percentage of consumers expecting higher prices remaining at essentially its post-pandemic “normal.” More than 60% of consumers have expected higher grocery and restaurant prices since February 2022.

Price remains top of mind for consumers, but they are also factoring in experience and a broader notion of value, whether pertaining to quality or quantity of product for that expected higher price. With consumers stressed by fuel costs, retailers expect a shift in spending patterns and increased demand for lower-price options. Larger retailers like Walmart and Kroger are using price investment, rollbacks and value positioning to protect traffic and market share, while food and beverage manufacturers are emphasizing affordability through pricing, promotions and productivity gains. Dirk Van de Put, CEO of Mondelēz International, summed up the attitude of many CPG food and beverage entities during the Consumer Analyst Group of New York Conference: “I don’t see how anything will change until the disposable income of the consumer goes up or cost starts to go down in a big way.”

Food companies turn to innovation and supplier support

Retailers and restaurants are differentiating where they can by refining offerings, pricing and experience to meet consumer need. This trend will certainly accelerate; agentic AI was a key buzzword at restaurant and grocer events this year as companies strive to engage consumers before they enter the store or restaurant. Manufacturers say research and development budget pressures are prompting them to look to ingredient suppliers for support with product messaging, product development and menu innovation. With the Make American Healthy Again initiatives, staple pantry products are under pressures they have never experienced before. Companies are being driven to devise new recipes and formulas to stay relevant in this ever-changing consumable environment.