In the summer of 2012, the United States experienced its worst drought since the 1980s. According to the U.S. Department of Agriculture (USDA), 80 percent of agricultural land in the United States experienced drought conditions in 2012. Extremely dry weather can lead to crop failure, which reduces supplies, and subsequently increases prices. This is important to consumers because higher crop prices typically lead to higher prices for groceries.
A previous Focus on Prices and Spending article examined the lag between an increase in agricultural prices and an increase in consumers’ grocery bills. The article found that changes in the Producer Price Index (PPI) for processed foods and feeds usually has an impact on the amount consumers pay for food at home 3 to 4 months later. However, periods of drought are considered unusual and may impose a different shock to our food costs, depending on the drought locations and severity.