Grocery Inflation Slows to 1.8% as Gas Pushes CPI to 3.7%

The aisle where inflation took a break

In September, grocery prices in the United States rose at their slowest pace in some time. Food-at-home prices were 1.8% higher than a year earlier, according to the Bureau of Labor Statistics' September Consumer Price Index. The index slipped 0.1% from August on a seasonally adjusted basis.1 Trade coverage noted that the annual rate fell from 2.2% in August. Cheaper dairy and beef pulled the basket down, while produce and non-alcoholic drinks went up.6

The rest of the report looked much worse. Headline CPI rose 0.6% for the month and 3.7% for the year. Gasoline jumped 9.1% in a single month and was up 34.2% from a year earlier, which accounted for more than half of the monthly increase.5 Core inflation, which leaves out food and energy, rose 0.3% for the month and 2.6% for the year. Both figures were above economists' forecasts.5 The annual core rate was up from 2.4% the month before.10

The main takeaway is that groceries are no longer driving the cost-of-living squeeze. Fuel is, along with stickier core prices. Households, however, are not reacting as if they feel that relief.

Inside the 1.8%: a split basket

The falling average hides price changes running in both directions. Dairy had the largest monthly drop of the six main grocery groups, down 0.9%, with milk down 2.0%. Meat, poultry, fish and eggs fell 0.5% combined, including a 1.0% drop in beef.6 Egg prices were 20.6% lower than a year earlier as supplies recovered from avian flu.5

Other items moved the opposite way. Fruits and vegetables rose 0.5% for the month and 3.7% for the year, about double the overall grocery rate.6 Coffee rose 0.9% in September and was up 7.1% from a year earlier.5 At the item level, rice was up 7.1% over the year and apples 7.5%. Average iceberg lettuce prices jumped about 11% in a single month.7

Two sets of figures appear to disagree, but they measure different things. A breakdown of BLS average retail prices put a pound of regular ground beef at $6.792 in September, about 7.4% above a year earlier. The same analysis cited a smaller 5.4% annual increase in the ground beef CPI index.7 The gap comes from method: average shelf prices and price indexes are calculated differently. That matters when shoppers compare their receipts with official statistics.7

Regional figures also differed. In the Midwest, grocery prices were up 1.5% for the year, and all six major food groups rose.8 In the West, food-at-home prices were up 2.4%.3 The national 1.8% figure is an average, and many households are paying more than that.

Restaurants and the widening gap

Restaurant prices are still the faster-rising part of food spending. Food away from home rose 0.2% in September and 3.5% over the year.5 Trade coverage put the gap between restaurant and grocery inflation at 1.7 percentage points, up from 1.2 points in August.6 That gives supermarkets an opening to push prepared foods, meal deals and store brands as cheaper alternatives to eating out.6

Forecasters do not expect a broad drop in grocery prices. The U.S. Department of Agriculture's latest Food Price Outlook projects food-at-home prices about 2.4% higher in 2026 than in 2025. It expects beef and veal to rise roughly 9.4% because cattle supplies are tight.7 The August outlook had put the grocery forecast slightly higher, at 2.5%, so the USDA has trimmed it a little.4 Prices also remain far above where they started this decade. One tracker estimates food-at-home prices are up about 27.6% since January 2021, and ground beef is up more than 70%.4

Confidence near record lows

If grocery inflation is cooling, consumer surveys do not show it. The University of Michigan's preliminary October sentiment index fell to 46.3 from 48.1, which is 13.6% lower than a year earlier.22 Its current-conditions index fell 6.2 points to 44.7, which PNC economists described as an all-time low.29 Year-ahead inflation expectations rose to 4.7% and long-run expectations to 3.5%. Both are the highest since May.22

The Conference Board's index, which is weighted more toward jobs, showed the same direction. It fell 6.7 points to 81.9 in September, and its expectations index fell for a third straight month.26 Corporate leaders are also more pessimistic. In a Conference Board survey, 41% of CEOs expected conditions to worsen over the next six months, up from 19% the quarter before.25

The drivers named in the coverage are consistent: fuel costs, conflict in the Middle East, higher long-term interest rates, and frustration with overall price levels.2921 Job fears play a smaller role. New York Fed data suggest expectations of losing a job have not worsened much.22 People are unhappy about their bills more than about their jobs. That helps explain why a 1.8% grocery reading does little for morale. A slowing rate of increase still leaves price levels higher, and a full tank costs about a third more than a year ago.

Retail sales are strong on paper, flat after inflation

On the surface, retail sales look healthy. Nominal sales rose 0.8% in September, well above the 0.3% consensus, after an upwardly revised 1.3% rise in August.12 Most of that came from gasoline station sales, which jumped 6.4% because of higher prices. Excluding gas, sales rose only 0.2%.12 The control group, which feeds into GDP calculations, rose just 0.1%.16

The Conference Board estimates that inflation-adjusted retail sales grew only 0.1% in September. Real sales grew at a 3.1% annualized rate in the third quarter, down from 5.1% in the second.16 The group still called third-quarter consumption healthy, but said shoppers are becoming more selective.16 Analysts largely agree on the headline numbers but differ in emphasis. Some point to resilient spending, while others note that rising prices account for much of the nominal growth.

This analysis takes the more cautious reading. Monthly sales at food and beverage stores rose 0.4% and restaurant sales rose 1.1%.12 With grocery prices falling slightly, at least some of the grocery gain reflects shoppers buying more rather than paying more. Spending on gas, however, is crowding out other purchases. Sales fell at building materials stores, sporting goods stores and general merchandise stores.12 Michigan's own survey points to further cutbacks. In a special question, 54% of consumers said they would cut back on items with significant price increases, and 16% said they would stop buying them.29

The divide by income is getting wider. Lower-income households and people with smaller investment portfolios lost confidence the fastest, while wealthier consumers continue to support overall spending.22 Early holiday surveys suggest a cautious season. Circana found shoppers plan to spend an average of $779, down from $796, and 74% plan to use savings strategies such as promotions and store brands.22

Subscriptions keep getting more expensive

Streaming and digital subscriptions keep getting pricier even as grocery prices settle. Netflix raised prices on all U.S. plans in March. Its ad-supported tier now costs $8.99, Standard $19.99 and Premium $26.99.33 Amazon raised the cost of ad-free Prime Video from $2.99 to $4.99 a month in April.31 YouTube Premium rose $2 to $15.99.34 Peacock raised prices on every tier in August, and Apple TV rose to $14.99.34 In September, Disney said ad-free Disney+ and Hulu would each rise to $21.49, its fourth increase in four years.34 Billing for those changes takes effect on October 21.40

One tally put eight major ad-free services at a combined $139.41 a month, or about $1,673 a year.35 Deloitte research puts the average U.S. household's streaming spend at $69 a month.32 Industry coverage says the increases reflect pressure to improve profit margins while content spending keeps rising, which makes the subscription price the easiest lever to pull.32 Pricing also increasingly pushes subscribers toward ad-supported plans.40

These bills are small next to rent or fuel, but they help explain the gap between official inflation and how expensive life feels. Streaming increases arrive as fixed, recurring charges with a notice email, so consumers see them clearly. A 0.1% drop in a grocery index is much harder to notice. With 54% of consumers saying they will cut back on items that rose sharply in price, subscriptions are an obvious place to cut.29

What to watch

Grocery prices are no longer the main inflation problem, but the September data do not mean affordability is improving. Energy prices are pushing headline inflation higher, and core inflation is running above forecasts.5 Sentiment and spending are moving apart: confidence is near record lows while spending holds up, increasingly on the strength of higher-income households.22 The final October Michigan reading comes out on October 23, and the Conference Board releases its October index on October 27.26 October retail sales are due on November 17.12 If gas prices ease, the cooler grocery trend could start to show up in household budgets. If they don't, a 1.8% grocery rate is unlikely to change how shoppers feel.