Oil Prices up 30% Since November

With oil increasing and likely to increase further, how will this impact food prices?Why is the link between oil and grocery prices weak visually?

Oil → Farm Products → Food Manufacturing → Grocery Retail → Food Inflation

The reason is that oil does not affect grocery prices directly but the impact is relevant and subtle. Food inflation is not a single market reacting to energy prices. It is the result of a series of linked markets adjusting to higher costs. These markets all have drivers which are working with and against oil prices. The noise can be reduced if we view each link in the chain.

The first link is oil and farm products. Farm production is the most sensitive to changes in oil prices. Tractors, fertilizers, and feed production all rely on oil and gas. In the chart below, we can clearly see how farm prices are connected to oil prices, livestock, and grains.

In recent years, bird flus and low cattle supplies have driven up livestock prices which have pushed farm prices higher while lower oil prices have been a counteracting force. Where would farm prices be if oil was not down double digits yoy?

The farm costs then push into food manufacturing, where agricultural commodities are processed into packaged food products. Food processing plants are also energy-intensive so the lower energy costs have helped to keep input costs lower as well as buffer higher farm and livestock prices. Again where would food manufacturing prices be if oil prices were not down significantly?

As the charts above show, oil is woven throughout the supply chain. The effects are easier to see when each link is examined. The concern is oil prices have been a pressure relief valve for the last few years and helped to keep a lid on food inflation.

Oil prices are already up 30% from November 2025. If the conflict is not short lived, oil will shift from a relief valve to a price amplifier, negatively impacting units and likely sales.

Next week I’ll run a few scenarios to quantify how these pressures may move through the system and what the current signals suggest for CPI Food-at-Home, units, and sales in the year ahead.