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TUESDAY, AUGUST 25, 2026   |   SPECIAL REPORT & ANALYSIS

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USDA Trims 2026 Food Inflation, Cuts 2027 Grocery Outlook

Beef and restaurant costs remain the stubborn exceptions

Analysis  ·  August 25, 2026

USDA’s August Food Price Outlook offers consumers modestly better news for grocery bills in 2026 and a much larger reduction in projected grocery inflation for 2027. But the report does not signal broadly falling food prices. It instead points to an increasingly divided food economy: egg prices are pulling the grocery average lower, beef and several produce categories remain expensive, and restaurant prices continue to behave more like sticky service sector inflation.

The Economic Research Service now expects all food prices to increase 3% in 2026, down from its July forecast of 3.1%.

Food-at-home prices are projected to rise 2.5%, down from 2.7%.

Food-away-from-home prices are expected to increase 3.6%, up from 3.5%.

USDA’s August update incorporates July Consumer Price Index and Producer Price Index data.

That amounts to only a modest shift for 2026: a 0.1-percentage-point reduction for all food, a 0.2-point reduction for groceries and a 0.1-point increase for restaurants. But the direction is significant. Grocery inflation is now forecast slightly below its 20-year average of 2.6%, while restaurant inflation remains slightly above its historical average of 3.5%.

Forecast	2026 July	2026 August	2026 Change	2027 July	2027 August	2027 Change
All food	3.1%	3.0%	−0.1	3.1%	2.4%	−0.7
Food at home	2.7%	2.5%	−0.2	2.9%	2.1%	−0.8
Food away from home	3.5%	3.6%	+0.1	2.1%	2.7%	+0.6

Table 1. What changed between the July and August reports. Forecast percent change in the annual average price level; “Change” is the month-over-month revision in percentage points. Source: USDA Economic Research Service, Food Price Outlook, August 2026.

2027 Forecast Undergoes a Much Larger Reset

The changes for 2027 are considerably larger. USDA lowered its all-food forecast to 2.4% from 3.1% and reduced projected grocery inflation to 2.1% from 2.9%. At the same time, it raised its restaurant-price forecast to 2.7% from 2.1%.

That should be viewed as a rotation within the food outlook rather than a broad disinflation signal. Restaurant inflation in 2027 would still slow from the 3.6% expected in 2026. USDA is essentially saying menu prices will moderate, but not nearly as rapidly as it believed one month ago.

The 2027 midpoints also come with enormous uncertainty. USDA’s 95% forecast interval ranges from a 3% decline to an 8.1% increase for all food and from a 5.7% decline to a 10.5% increase for food at home. The grocery interval therefore spans 16.2 percentage points. By comparison, the food-away-from-home range is zero to 5.5%, reflecting the historically steadier—but more persistent—behavior of restaurant prices.

Figure 1. The 2027 midpoints carry enormous uncertainty. Bars show USDA’s 95% prediction intervals; diamonds show the midpoint forecasts. The food-at-home interval spans 16.2 percentage points. Source: USDA Economic Research Service, Food Price Outlook, August 2026.

One timing clarification is important: 2027 begins in about four months. However, USDA is forecasting the average of monthly prices through December 2027, which is roughly 16 months from the August report. Most of the 2027 data therefore have not yet occurred.

USDA also emphasizes that its figures measure the average price level for an entire calendar year compared with the previous calendar year. They are not forecasts of the December-to-December rate or the year-over-year reading in a particular month. The estimates are generated statistically from recent CPI and PPI trends, which helps explain why the first projections for a new year can move sharply after only one additional month of data.

A Moderate Grocery Average Masks a Highly Uneven Basket

USDA expects seven of the 15 major grocery categories it tracks to rise faster than their 20-year averages in 2026: beef and veal, fish and seafood, fresh fruits, fresh vegetables, processed fruits and vegetables, sugar and sweets, and nonalcoholic beverages.

Pork, other meats, poultry and other foods are projected to increase more slowly than their historical averages. Cereals and bakery products are expected to rise at their historical rate, dairy prices are forecast to be unchanged, and only eggs and fats and oils are expected to decline.

Grocery category	2026 forecast	Position vs. 20-year average
Beef and veal	+9.8%	Faster than average
Sugar and sweets	+7.1%	Faster than average
Fresh vegetables	+5.9%	Faster than average
Nonalcoholic beverages	+4.3%	Faster than average
Fresh fruits	+2.9%	Faster than average
Fish and seafood	—	Faster than average
Processed fruits and vegetables	—	Faster than average
Cereals and bakery products	—	At the historical rate
Pork	+0.8%	Slower than average
Poultry	+0.5%	Slower than average
Other meats	—	Slower than average
Other foods	—	Slower than average
Dairy products	0.0%	Unchanged
Fats and oils	—	Expected to decline
Eggs	−30.8%	Expected to decline

Table 2. Seven of 15 grocery categories are forecast to outrun their 20-year averages in 2026. Point forecasts are shown for the categories cited in this report; “—” marks a category USDA characterized by direction only. Source: USDA Economic Research Service, Food Price Outlook, August 2026.

That means the 2.5% grocery forecast will not resemble the experience of every household. A family purchasing considerable beef, seafood, fresh produce, candy, coffee or soft drinks could face inflation substantially above USDA’s overall estimate. Consumers whose baskets contain more pork, chicken, eggs and dairy would likely experience considerably less.

Figure 2. The spread inside the grocery basket is far wider than the 2.5% average. Categories with a published 2026 point forecast, ranked. Dashed line marks the all-grocery forecast. Source: USDA Economic Research Service, Food Price Outlook, August 2026.

Beef Remains the Central Food-Inflation Problem

Retail beef and veal prices were 9.4% higher in July than a year earlier. USDA now expects them to rise 9.8% for all of 2026—down from July’s 10.7% forecast, but still by far one of the strongest increases in the grocery basket.

USDA said federally inspected beef production fell nearly 5% in July, supporting wholesale beef prices at or above records for that time of year. The agency expects tight cattle supplies to keep beef production below year-earlier levels during the second half of 2026. Farm-level cattle prices are projected to rise 9.9% for the year, while wholesale beef prices are forecast to increase 9.4%.

The alignment of farm, wholesale and retail forecasts indicates that the beef increase is fundamentally supply driven. A smaller cattle herd cannot be rebuilt quickly, and retaining heifers initially removes additional animals from near-term slaughter supplies. Consequently, the reduction from 10.7% to 9.8% should be interpreted as slightly slower inflation—not meaningful beef-price relief.

Using July CPI weights as a rough illustration, beef represents about 7.8% of the food-at-home index. A 9.8% beef-price increase could add roughly 0.8 percentage point to grocery inflation by itself. Pork and poultry, projected to rise only 0.8% and 0.5%, respectively, will offer consumers much less expensive protein alternatives and could receive more supermarket promotion and restaurant menu emphasis.

USDA’s detailed 2027 forecast lowers the expected beef increase to 5.1%. That would be a substantial deceleration from 2026, but beef would still be rising more than twice as fast as the 2.1% forecast for the overall grocery basket.

Egg Prices Supply Most Visible Relief — but Remain Volatile

Eggs are the clearest source of grocery-price relief. Retail egg prices were 25.7% below year-earlier levels in July, and USDA expects a 30.8% annual decline in 2026.

Fewer HPAI detections during the first quarter, recovering egg production and adequate supplies of replacement pullets have allowed producers to cover normal flock turnover and unexpected disease-related losses. But the underlying market remains volatile: farm-level egg prices jumped 27.3% from June to July even though they remained 79% below July 2025. USDA forecasts an 82.1% annual decline in farm-level egg prices.

Eggs have a much smaller CPI weight than beef, but the decline is sufficiently large to depress the grocery average. Based on July weights, eggs represent about 1.4% of the food-at-home index. A 30.8% drop would subtract roughly 0.4 percentage point from grocery inflation under a simple fixed-weight calculation—offsetting more than half of beef’s approximate contribution.

Figure 3. Two categories move the grocery average in opposite directions. Fixed-weight contributions to the 2.5% food-at-home forecast, using July 2026 CPI weights; “all other categories” is the residual. Source: USDA Economic Research Service and Bureau of Labor Statistics; Ag Policy & Markets Daily calculations.

USDA’s 2027 egg forecast was revised to a decline of only 3.2%, compared with an initial drop of 11.1%. That does not necessarily signal a worsening supply outlook. It partly reflects the much lower price base created by 2026’s projected 30.8% collapse: after such a large adjustment, there is less room for another double-digit annual decline.

HPAI nevertheless remains a major upside risk. A significant wave of flock losses could rapidly reverse the expected recovery, as occurred during earlier phases of the outbreak.

Produce, Sweets and Beverages Keep Pressure on the Grocery Aisle

Fresh vegetable prices are forecast to increase 5.9% in 2026. They were 6.3% above year-earlier levels in July, including increases of 12.8% for tomatoes, 7.5% for lettuce and 3.4% for potatoes. Fresh fruit prices are expected to increase 2.9%.

Sugar and sweets are forecast to rise 7.1%, driven largely by candy and chewing gum, a category that includes most chocolate candy. Nonalcoholic beverages are projected to increase 4.3%, with coffee and tea among the underlying sources of pressure.

These categories help explain why consumers may continue reporting severe food inflation even as USDA’s aggregate grocery forecast moderates. Highly visible, frequently purchased items often shape inflation perceptions more strongly than products whose prices are stable or falling.

Farm Prices and Retail Prices Continue to Diverge

The report also shows why changes in farm commodity prices do not translate directly or immediately into supermarket prices.

Farm-level fresh vegetable prices plunged 29.4% between June and July and ended July 19.1% below a year earlier. Yet retail fresh vegetable prices remained 6.3% higher year over year. For the full year, USDA still forecasts farm-level vegetable prices to rise 17.8% and retail prices to increase 5.9%.

Farm-level wheat prices are expected to rise 17.1% in 2026 following a large projected reduction in U.S. wheat production. But cereal and bakery prices are forecast to increase only at their 20-year average rate. Farm-level milk prices are projected to fall 6.3%, while retail dairy prices are expected to remain unchanged.

Figure 4. Farm-level moves do not pass straight through to the shelf. 2026 forecast change, farm level (PPI) against retail (CPI). Source: USDA Economic Research Service, Food Price Outlook, August 2026.

The contrasts reflect the substantial processing, packaging, transportation, labor, storage and retail components embedded in consumer food prices. USDA notes that farm and wholesale PPIs are much more volatile than retail CPIs and that consumer prices generally react with a lag. A sharp farm-price decline therefore does not guarantee immediate retail deflation, just as a temporary farm-price increase may be absorbed before reaching consumers.

Restaurant Inflation Is Proving Harder to Dislodge

Food-away-from-home prices rose 0.3% in July and were 3.4% higher than a year earlier. USDA’s 3.6% forecast for 2026 would mark another year in which restaurant inflation exceeds grocery inflation.

The persistence is not new. USDA notes that restaurant prices rose consistently during 2009-19 even when food-at-home prices declined in 2016 and 2017. Prepared food is more service intensive and incorporates labor, occupancy, utilities and other operating costs that do not fall merely because a farm commodity becomes cheaper.

Restaurants also tend to change menus less frequently than supermarkets adjust shelf prices. Once higher costs have been incorporated into menu prices, operators are more likely to hold prices steady or offer promotions than to make broad price reductions. That helps explain why USDA’s 2027 restaurant forecast has been revised upward even as the grocery forecast was cut sharply.

The CPI Weights

The relative-importance figures reported with the July 2026 CPI are dated June 2026 — the most recent weights BLS publishes with each monthly release. On that basis, food had a relative importance of 13.522% of the all-items index, consisting of 8.231% for food at home and 5.290% for food away from home.

Energy represented 7.432% of the CPI, including 4.132% for energy commodities and 3.300% for energy services. Earlier 2026 energy-price increases lifted energy’s CPI weight substantially above late-2025 levels, although the relative importance declined from 7.791% in May as energy prices fell in June.

Component	Share of all-items CPI	Share of food-at-home index
Food	13.522%	—
Food at home	8.231%	100.0%
Meats, poultry and fish	1.847%	22.4%
Beef and veal	0.640%	7.8%
Eggs	0.112%	1.4%
Other foods	1.693%	20.6%
Food away from home	5.290%	—
Energy	7.432%	—
Energy commodities	4.132%	—
Energy services	3.300%	—

Table 3. Relative importance for June 2026, as reported in the July 2026 CPI. Meats, poultry and fish represent about 13.7% of the all-food index but 22.4% of the food-at-home index. USDA’s “other foods” category represents about 12.5% of the all-food index and 20.6% of the food-at-home index. Beef and veal is a component of meats, poultry and fish; eggs is reported separately. Sources: U.S. Bureau of Labor Statistics; USDA Economic Research Service.

The 12.5% weight for “other foods” and the roughly 13.7% weight for meats, poultry and fish are shares of the all-food index, not shares of the grocery index. Relative to food at home, other foods represent approximately 20.6%, while meats, poultry and fish represent about 22.4%. One distinction matters here: “other foods” is the BLS line item reported at 1.693% of the all-items index, the category USDA forecasts under that name. It is not the broader BLS grouping “other food at home,” which is 2.242% of the CPI and 27.2% of the grocery index because it also contains sugar and sweets and fats and oils.

Bottom Line

AG POLICY & MARKETS DAILY   |   MARKET PERSPECTIVE  |  FOOD PRICE OUTLOOK — TUESDAY, AUGUST 25, 2026