Josh Sosland, PortraitJosh Sosland, editor of Milling & Baking News.

KANSAS CITY — Inflation for food and other goods and services moderated in March but remained far above historical averages. In terms of lost volume because of the historic inflation surge, consumer packaged foods companies appear to have been “lightly scratched” rather than “severely hurt” so far, but recent comments by industry executives suggest tougher times ahead.

The string of price increases has been historic. The Consumer Price Index for all food at home in March was up 8.3% from a year earlier, the 18th consecutive month of food inflation north of 5%. Before October 2021 when monthly food inflation first eclipsed 5%, it had been almost 10 years, since January 2012, since the figure topped 5% for even one month. Before easing in March, prices for food at home were up 10% or more than the year-earlier figure 12 straight months. It was the longest streak since 1978-79 when double-digit food inflation persisted for 13 months in a row, a time not long before the prime rate peaked at 21.5% (the prime rate today is a meager 8.25%). A longer and more severe streak of food inflation hit in the early 1970s when, after the Russian Wheat Deal, food prices posted double-digit gains 23 straight months, with year-to-year price increases peaking at 22.4% in February 2004.

During the current bout of inflation, food executives initially took sanguine stances about how the higher food costs were affecting their businesses. Emphasizing successes their companies were achieving in passing along higher costs, most executives said elasticity trends, while demanding close attention, were well below historical norms. Companies were shining a brighter light on their double-digit revenue gains than on whatever decreases in volume they were experiencing, but volume losses that were disclosed generally were modest, reflecting consumer resilience and sophisticated category management by foods companies.

Analysis of price elasticity varied among executives in the most recent quarter, but it was clear they were seeing and responding to changes in consumer behavior driven by food inflation.

“Consumer behavior continues to evolve,” Michele G. Buck, chairman, president and chief executive officer of The Hershey Co., said in an April 27 earnings call. “We know that many consumers have made changes to their spending to respond to inflation in the marketplace.”

“Channel shifting” by lower-income consumers toward more value-focused retailers or into the dollar channel was described in a May 3 investment call by Carlos A. Abrams-Rivera, executive vice president and president of North America, Kraft Heinz Co. Mr. Abrams-Rivera said shifts also have been seen among higher-income consumers, moving to traditional supermarkets or club stores from specialty retailers. In response, the company has made changes across its value continuum, adding more dollar stock-keeping units and more club size packaging, trying to ensure consumers remain in the category and buying Kraft Heinz brands. On the foodservice side, the shifting consumer behaviors have prompted Kraft to focus on building its presence in the quick-service restaurant segment.

A day later, in a call with investment analysts, executives of the Kellogg Co. said first-quarter elasticities across its business were lower than expected. A 15.6 percentage point increase in price/mix resulted in only a 1.9% decrease in volume. Still, the company said elasticity was increasing in Europe and Latin America. Like Kraft Heinz and other companies, Kellogg has worked to protect its gross margins through pricing, but the cost in terms of lost volume may grow as the year progresses.

“As we think about the remainder of the year, we are prudently assuming that elasticities start to increase and approach not quite historical levels but on a march toward historical levels,” said Steven A. Cahillane, chairman, president and CEO of Kellogg.

A strong jobs report for April heightened fears inflation will take longer to tame than hoped. Following difficult weather conditions in the late winter and early spring, conditions for US crop prospects have been improving, a positive but very preliminary sign. For branded food companies, the latest bout of inflation cannot end soon enough.