CPI FAH Growth Will Push Grocery Sales Higher

This the Grocery Sales Outlook for August 2025. When I published my 2025 grocery forecast in December 2024, it was met with a degree of scepticism. A new president was about to take office and the chaos and drama would not be good for the economy and for the grocery industry. What many underestimated was how big and resilient the economy is and what many overestimated was how much influence the president has on economic growth although this one is trying harder than most, good or bad.

Even with all of the emotion and uncertainty that we have been dealing with, GDP is looking solid and so is grocery sales. Many expected GDP growth to soften in Q3 as tariff driven inflation and sour consumer sentiment were going to temper consumer expenditure, but this is not happening. The consumer remains strong and Q3 GDP growth will likely come in around 3%. Moreover, corporate tax breaks are coming in 2026 (reserving any judgement here) and will likely boost GDP in 2026. Grocery sales have also been robust for 2025 as we forecasted back in Dec 2024 (https://www.derivzero.com/post/wrapping-up-24-and-forecasting-25). We were expecting something around 2.6% and it is very likely that the final 2025 numbers will be even stronger.

With the self serving pat-on-the-back out of the way, lets look at the data. Below we can see grocery sales were up 3.4% in August and much of that was driven by higher food inflation, but units are also trending up. YTD sales are up 3.2% and the last 12 months are up 3.1% so the sales trend is pretty healthy and consistent.

The key to grocery sales moving forward in future months is food inflation. Our August food inflation forecast expects it to higher over the next several months, leveling out at about 3.4% YOY but could move higher. The CPI level is significant because grocery retailers want prices to increase but not so high that it cuts into unit growth. For 2025, we don't expect CPI FAH to surpass 4%, so units and sales should finish the year strong. Bets are off for 2026 until we have more data.

Looking at the CPI FAH rolling forecast, you can see that CPI FAH forecast has changed its trajectory signficantly (grey line). This change in trend for both August and Septembert forecasts is due to both Farm Products and/or Food Manufacturing prices increasing in the last two months. For more detailed CPI FAH analysis, see https://www.derivzero.com/post/tariffs-starting-to-hit-the-food-fan.

The elevated CPI FAH will be a nice tailwind for grocery sales. The grey line in the chart above (CPI FAH) is why the grey line in the chart below (Grocery Sales) is climbing so much faster than the previous forecasts. The y-axis is in ten billion dollars so the 7.8 on the y-axis is $78B.

Based on the grey line, we expect the forecast to fall between 1.8% and 3.5% YOY growth, which can be seen in the chart below. Last month this range was 1.7% to 2.6%, so the bump in the Sales forecast due to the higher CPI FAH forecast is significant.

Overall, grocery sales are healthy and in a good place as long as CPI FAH does not move too high. We don't expect it to in 2025 and are optimistic that grocery sales will end the year above 2.5% which is much higher than last year's 1.78% growth.