What the price difference between ham and bacon tell us about inflation

Source: CNN

Shoppers in the meat aisle may have noticed something weird last month: Bacon prices are sizzling, but ham’s not so hot.

Bacon is more expensive than it was a year ago, with prices up 6.9% from May 2023 to May of this year, according to inflation data from the Bureau of Labor Statistics. Pork chops were up too, by 4.6%. But ham prices were lower, falling 5.4% overall and dropping 6.3% when you exclude canned varieties.

What gives?

Econ buffs may remember that prices are set according to supply and demand. You’d expect any supply issues — like too many hogs, or too few — to cause prices of each of the items to move up or down, all in the same direction.

The discrepancy, then, must be caused by differences on the demand side. And it is: Demand for domestic pork has grown in recent years outside of the US. But rising demand, plus the same or reduced supply, should push prices up, not down.

So again, what gives?

To understand you have to zoom out, looking at long-term retail pricing strategy and food price trends.

It’s all relative

Glynn Tonsor, a professor in the department of agriculture economics at Kansas State University suggests that if you zoom out, pork prices are indeed going up across the board.

From May 2019 to May 2024, according to government data shared by the Federal Reserve of St. Louis, prices of ham, pork chops and bacon all went up.

But prices for ham actually went up higher than the prices of bacon and pork chops. That’s because US ham exports have been booming, particularly to Mexico.

“In the middle of that five-year period, we had that Mexican demand boost,” Tonsor said. “The US market’s competing with Mexico for the same ham,” he added. “So the prices are going to be higher domestically.”

So that year-over-year decrease you see in the grocery store is really just a drop from those heights.

Hams are offered for sale at a grocery store ahead of the Thanksgiving Holiday on November 20, 2023 in Chicago, Illinois.

People love bacon

Another reason for high bacon prices: Strong demand, even when it’s expensive.

“People are more willing to pay for bacon than they are maybe some other pork products,” said Christine McCracken, senior animal protein analyst at RaboBank.

Retailers set prices strategically. So if they know that customers are more willing to spend more on bacon, they might keep those prices high or raise them to make up for decreases in other areas, where customers might spend less.

Prices in the supermarket aren’t just tied to cost. They’re also determined according to the psychology of how people shop.

For example: If you see a deal for eggs or pancake mix, you might go into the store for those items. Once inside, you may very well pick up a package of bacon as a treat — because you’ll be making breakfast at home, anyway, and you got a good price for most of the meal.

It’s also possible that bacon prices are not quite as high as they seem because of discounts.

“What you see more in bacon is kind of a high-low strategy,” said McCracken. “You’ll keep the price high on a normal day and then put it on super sale.”

And even if bacon, pork chops and (taking the long view) ham are getting more expensive, they might still be a cheaper protein option than beef — not to mention restaurant meals.

Cheaper than fast food

While grocery prices are flattening, menu prices continue to increase — frustrating customers and prompting some to dine out less often and spend less when they do.

Grocery prices rose 1% in the 12 months through May, according to the Bureau of Labor Statistics. In that period, menu prices at full-service, or sit-down, restaurants rose 3.5%. They jumped 4.5% at limited-service restaurants, which include fast food and fast casual joints.

Chains from Burger King to KFC to Starbucks have started offering menu deals in an effort both to bring people back and restore their reputations as affordable food options.

Still, buying bacon from the supermarket and making a sandwich at home is cheaper than buying a BLT or a bacon cheeseburger from a restaurant. Even if grocery-store bacon is pricier than it was this time last year.