How USDA Forecasts Retail Food Price Inflation

Wholesale and retail food price forecasts are useful to farmers, processors, wholesalers, consumers, and policymakers alike, as the structure and environment of food and agricultural economies are continually evolving. USDA's Economic Research Service analyzes food prices and provides 12- to 18-month food price forecasts for 7 farm, 6 wholesale, and 19 retail food categories. In 2011, ERS’s forecasting procedure was updated to employ a vertical price transmission method that incorporates input prices at each stage of production. Where this is not possible, an autoregressive moving average approach is used. This report provides a detailed description of the revised methodology as well as an analysis of the overall accuracy and performance of individual forecasts. The revised forecasting methods show modest increases in forecast accuracy compared with simple univariate approaches previously used by ERS.