The grocery industry is grappling with many challenges, including inflation and the threat of tariffs on imports from Mexico and Canada, according to FMI – The Food Industry Association’s 2025 Inflation & Food Price Outlook.
Andrew Harig, FMI’s VP of tax, trade, sustainability and policy development, highlighted the mixed signals in recent inflation data during a media briefing March 6.
“Overall inflation was up 0.5 percent from December, which is the same as the food-at-home increase of 0.5 percent, so we’ve got a little bit of a mirroring process going on there,” Harig said, citing January Consumer Price Index data.
Year-over-year data, however, shows food-at-home inflation rising at a slower pace than overall inflation, offering some relief to consumers.
“Since January 2024, overall inflation increased 3 percent, but food at home increased just 1.9 percent over that same period,” Harig noted. “This is good news for American consumers.”
He emphasized, however, that nearly two-thirds of that increase was driven by the surge in egg prices due to the ongoing outbreak of “highly pathogenic avian influenza.”
Rising egg prices
Egg prices have reached record highs, even adjusting for inflation, with the midpoint number for eggs at 41 percent, according to Ricky Volpe, an associate professor of agribusiness at Cal Poly.
“In the 15 years I’ve been tracking CPI numbers, that’s the biggest number I’ve ever seen on these tables,” he said.
Harig noted the avian flu outbreak not only is impacting egg prices but also products made with eggs, such as baked goods, mayonnaise and dressings.
“They are an important ingredient in the entire food supply chain,” he said.
FMI is encouraging its members and their customers to be flexible in how they go about dealing with the outbreak, including consulting in-store registered dieticians and nutritionists about meal planning and recipe ingredient substitutions.
“Shoppers are nimble,” Harig said. “They’re using all the tools in their toolbox. They’re buying different brands … shopping at different stores and substituting eggs with other products, or in some cases just buying less and finding other meal alternatives to serve their families. It’s really impressive to see this.”
Other products, such as beef, veal and sugar also are experiencing above-average inflation due to specific supply chain challenges.
“All of these categories are among the more volatile of the ones that we regularly track and keep an eye on when we’re looking at these CPIs, year over year,” Volpe said.
He noted that the beef cattle inventory in the U.S. is at its lowest level since 1951, citing high input costs and interest rates as key factors. Meanwhile, adverse weather in South America and Western Africa has driven up sugar and cocoa prices, which are now about double their historical averages.
Despite these challenges, Volpe emphasized that 81 percent of food and beverage categories monitored by the Bureau of Labor Statistics’ food price outlook are trending toward below-average inflation in 2025.
“That’s a piece of good news,” he said. “For shoppers who are willing to make substitutions or adapt to current challenges in the grocery store, there are still significant opportunities to keep food spending at or below the levels they were at in 2024.”
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Tariffs on Mexican, Canadian goods
The potential impact of tariffs on imports from Mexico and Canada remains a significant concern for the industry. President Trump recently announced a 30-day suspension of tariffs on Mexican products, but the situation with Canada remained unresolved at the time of the briefing.
“Tariffs are inflationary overall, and this is definitely an uncertain time,” said Harig, adding the relationship between the North American neighbors is important not only to the U.S. food supply but in creating and driving jobs in the country.
Recent analysis by the Peterson Institute for International Economics estimates that a 25 percent tariff on goods from Canada and Mexico, along with other proposed tariffs, could cost the median U.S. household an additional $1,200 annually. The Yale Budget Lab estimate under the same scenario is $1,900.
Mexico and Canada are critical trade partners for the U.S., accounting for $90 billion in agricultural imports annually.
Mexico supplies avocados, tomatoes, beer and beef, among other items, while Canada provides beef, grains, seed oils potatoes and more, according to Volpe.
“A 25 percent tariff on fresh avocados, for example, which to my knowledge is currently paused, would filter through pretty cleanly to avocado prices, unless retailers are willing to absorb some of that and take a hit on their margins, which is very challenging to do right now,” he said.
The tariffs, initially proposed as part of broader trade negotiations, were set to take effect March 12. However, the 30-day suspension on Mexican goods has temporarily alleviated some concerns.
The suspension provides a bit of breathing room, but the uncertainty remains, Harig said.
“We’re still waiting to see what happens with Canada.”
The proposed tariffs include a 25 percent levy on agricultural products from both countries, as well as a 10 percent tariff on energy products and a 10 percent tariff on goods from China. These measures are expected to have a cascading effect on food prices, particularly for fresh produce and meat.
Harig explained that the impact of tariffs varies depending on the product. For highly processed goods with multiple ingredients, the effect may be diluted. But for fresh produce like avocados or tomatoes, which are largely imported from Mexico, the price transmission could be more direct, he said.
Steel, aluminum tariffs – a hidden cost
In addition to agricultural tariffs, the proposed 25 percent tariff on steel and 10 percent tariff on aluminum imports could further strain the food industry.
While it isn’t typically seen as a major consumer of metals, these materials are critical for packaging, shelving and transportation, Harig said.
Aluminum is used extensively in canned goods and beverage packaging, while steel is essential for store infrastructure, equipment and transportation vehicles. “These steel and aluminum tariffs will likely translate into higher costs for consumers,” he added.
Consumer resilience, adaptation
Despite these challenges, consumers are demonstrating resilience and adaptability. FMI’s March Grocery Shopper Snapshot found that consumers “expressed a mix of optimism, hope, anxiety and worry – very much the yin and yang of the shoppers’ experience,” Harig said.
He added that most shoppers feel in control of their grocery budgets, even as concerns about tariffs, prices and food safety have risen.
Volpe also pushed back on the narrative that dining out has become cheaper than cooking at home. Over the past decade, restaurant prices have increased 53 percent, compared to 31 percent for grocery prices.
“Budget-conscious shoppers should be focusing on food at home, because that’s where inflation has been a lot slower,” he said.
Looking ahead
Volpe stressed the importance of long-term investments in technology and renewable energy to mitigate future supply chain disruptions.
He noted that he is a “big proponent” of controlled environment agriculture. While the upfront costs are high and there is a lot of risk involved, “I do think that it’s going to be a big part of the wave” of the future.
“And it’s relevant right now, because the more the U.S. expands in this technology and this capability, the more we will be able to shore up our own domestic supply in the event of international challenges, which are going to be coming. They’re never going to stop coming.
“Tariffs aside, there’s always a frost or a flood or a freeze somewhere that’s affecting food prices in the U.S. … I’m a big proponent of making changes and technologically advancing our food supply chain.”
As the industry braces for potential tariff impacts and ongoing supply chain challenges, Harig emphasized the need for flexibility. “Consumers and the food industry must remain nimble to adapt to these uncertain times,” he said.