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What is behind the rise in prices for bakery products?

By Sarah Berman and Joe Nunes

Over the 3-year period beginning January 2021, the Producer Price Index (PPI) for bakery products increased in 35 of 36 months. This is of particular interest because the PPIs for wheat and other grains (the primary material inputs for bakery products) rose substantially over the first half of this period (January 2021 through mid-2022) and decreased sharply over the second half of this period (mid-2022 through the end of 2023). The retreat in prices for these material inputs was not accompanied by corresponding declines in the PPIs for bakery products.

The PPI is an official measure of inflation produced by the Bureau of Labor Statistics. PPIs measure the average changes in selling prices received by producers of goods, services, and construction. The PPI program reflects sales to all types of buyers while tracking price movements from the perspective of producers.

This Beyond the Numbers article explores the reasons behind the price increases for bakery products from 2021 through 2023. We start by looking at the different factors that caused the prices of wheat and other grains to rise through mid-2022. We then examine why bakery product prices continued increasing despite the decrease in overall grain prices from the middle of 2022 through 2023. Then, we discuss how the price changes of other bakery product inputs affected bakery product prices. We also evaluate how the rising cost of labor, shifts in consumer demand, and changes in spending trends after the COVID-19 pandemic also affected price movements.  

Wheat and grain prices rise and then fall, but bakery product prices continue to rise

Prices for wheat and other grains rose steadily throughout 2021 and into early 2022. By May 2022, wheat prices had increased 84.4 percent from January 2021, reaching a price level just shy of its record-high observed in spring of 2008.¹ There were numerous reasons for these price increases, including increased production costs for farmers, such as fertilizer costs; poor weather conditions, such as severe drought in some places and heavy rains and planting delays in others; and supply chain interruptions resulting from the COVID-19 pandemic.² Further complicating this situation, the onset of the Russia–Ukraine War in February 2022 increased disruptions to the global supply chain for grains. Both Russia and Ukraine farm the prime agricultural lands surrounding the Black Sea, and both nations are major producers and exporters of grain.³

With wheat prices near record levels by mid-2022, prices for products that use wheat as a major input, such as wheat flour (up 48.4 percent) and bakery products (up 12.2 percent), also experienced price increases over that same period.⁴ (See chart 1.)

Wheat prices began to rapidly decrease when Ukraine and Russia, supported by the United Nations and Turkey, agreed to the Black Sea Grain Deal corridor, and the U.N. Joint Coordination Center was put in place to facilitate exports for the region.⁵ This allowed supplies which had been trapped in the two countries to enter the world market. Also contributing to wheat’s price decline were record harvests in both Australia and Russia, along with improved growing conditions in the United States.⁶ The impact was immediate, with wheat prices dropping 27.9 percent from May 2022 through August 2022. By December 2023, wheat prices had dropped 44.5 percent.

With lower wheat prices in the second half of 2022 came a softening in prices for flour and flour-base mixes, which peaked in November 2022 and then declined throughout 2023. With these decreases, it would not be unreasonable to expect some downstream products to also drop in price. However, although the PPI for flour and flour-base mixes and doughs decreased 3.1 percent from May 2022 to December 2023, the index for bakery products increased 10.5 percent over the same period. Specifically, producer prices for bread rose 13.2 percent, while prices for cookies and crackers increased 4.0 percent. Similarly, at the consumer-retail level, the Consumer Price Index for bakery products increased 12.2 percent over the same period.

Price increases for bakery and other flour-base products

The price increases for wheat and flour that lasted through May 2022 were followed by sharp, persistent price increases in bakery products, such as soft cakes, cookies and crackers, as well as other sweet goods. The PPI for bakery products increased 10.2 percent between May 2020 and May 2022 and went up another 10.5 percent from May 2022 to December 2023, even as wheat prices decreased. This aligns with research showing there tends to be a lag in price transmission from the farm price of essential raw agricultural inputs to finished food products, and that this connection has diminished over time.⁷ It also would be reasonable to expect that the persistent decrease in wheat prices that started in May 2022 would eventually lead to lower prices of wheat-based products (in this case, bakery products). However, as noted, the sharp retreat in wheat prices was not followed by decreases in prices for bakery products at either the producer or consumer levels.⁸ (See table 1.)

Table 1. Percent changes in the PPIs for wheat, bakery products, flour-base mixes and doughs, and selected baked goods, January 2018–December 2023, not seasonally adjusted

Index	Percent change from January 2018 to May 2020	Percent change from May 2020 to May 2022	Percent change from May 2022 to December 2023
Wheat	6.9	132.2	-44.5
Flour and flour-base mixes and doughs	0.0	40.1	-3.1
Bakery products	4.8	10.2	10.5
Bread (white, wheat, rye, etc.), including frozen	5.4	9.0	13.2
Soft cake, excluding frozen	3.8	23.2	7.3
Cookies, crackers, and related products	2.8	7.7	4.0
Other sweet goods, excluding frozen	8.0	17.1	14.6
Bakery products (Consumer Price Index)	5.0	12.4	12.2
Source: U.S. Bureau of Labor Statistics.

Price increases for spices, extracts, sugar, and similar inputs affect prices of baked goods

While rising wheat prices were a major factor in the overall increase in prices for bakery products through mid-2022, prices for other inputs rose from March 2022 through December 2023. Prices for spices, extracts, flavorings, and sugar, which had been stable historically, increased in response to persistent supply-chain disruptions. A tight labor market post-COVID, materials shortages (including both input materials as well as supplies such as packaging), a strained transportation sector, as well as poor weather that affected growing conditions, impacted production.⁹ (See chart 2.)

Although some of these changes may not initially appear substantial, when the historical price stability of these ingredients is considered, any change in prices can cause considerable downstream consequences for production. Higher prices for flavoring extracts, emulsions, liquid flavors, and food colorings (which are used as inputs to baked goods) have been frequently discussed throughout the baking industry as one of the significant reasons for the increases in prices of bakery products. The PPI for flavoring extracts, emulsions, liquid flavors, and food colorings increased 2.0 percent from May 2022 to May 2023, while the PPI that includes salt, pepper, and other spices rose 6.1 percent for the same period. Similarly, the PPI for refined sugar products and byproducts was up 13.0 percent from August 2022 to August 2023, the largest 12-month increase since August 2011.

Erratic prices for chicken eggs affect bakery product prices

Chicken eggs were another major input which contributed to higher prices for bakery products.¹⁰ Egg prices became highly erratic beginning in April 2022. (See chart 3.) By December 2022, the index for eggs surged 248.1 percent for the calendar year, as an outbreak of the Highly Pathogenic Avian Influenza (HPAI) virus limited supplies.¹¹

Demand shifts for bakery products affect pricing

There also were major changes in demand since the onset of the COVID-19 pandemic. Food spending in general increased 27.8 percent in 2022 from its level in 2020, due to ongoing inflation and COVID-19-related supply chain issues. While expenditures on food away from home rose 53.2 percent, food at home also was higher, increasing 15.6 percent from 2020 to 2022. Meanwhile, average annual expenditures for bakery products increased 16.1 percent from 2020 to 2022.¹² While some of the shift in total bakery product expenditures was due to higher prices, there was also a notable switch in consumer preferences to fresh, high-quality bakery items, forcing grocery stores to pivot their offerings. The strong demand for bakery products continued into 2024. During COVID-19, this came in the form of a massive increase in home baking. Post-COVID, this transitioned to high demand for more expensive luxury treats.

Worker shortages lead to increased wages in bakeries

In addition, bakeries have been dealing with persistent worker shortages as the labor market moved beyond COVID-19 restrictions. Companies in the baking industry have found it difficult to compete for labor due to the long hours required and the need to be primarily on-site.¹³ As the U.S. labor market began to recover from the steep job losses seen at the onset of the pandemic, the number of job openings outpaced the number of unemployed people. Consequently, bakeries, like businesses in many other industries, increased wages more rapidly following the pandemic to acquire and retain workers.

Bakery product prices in the fourth quarter of 2023

Though the United States economy moved beyond some of the COVID-19-induced supply chain issues, there were challenges moving into the fourth quarter of 2023 that continued to put upward pressure on prices for bakery products.

A major impediment was Russia’s withdrawal from the Black Sea Grain Deal. This deal with Russia, Ukraine, the United Nations, and Turkey was intended to ensure that Ukraine would be able to steadily export their large grain supplies.¹⁴ The deal began to collapse in November 2022 when Russia slowed its required inspections, which dropped the export rate and created surplus supplies within Ukraine. In response, Ukrainian farmers did not harvest their crop as quickly as in years past.

Another complicating factor was a fertilizer shortage. Much of the world’s fertilizer comes from Russia, and exports were disrupted by international sanctions over the war.¹⁵ As a result, the availability of global wheat supplies has become an issue once again.

Consequently, the post-pandemic PPI for bakery products remained highly elevated from where it was before the pandemic, but the year-over-year change slowed from a high of 14.5 percent in November 2022 to 3.8 percent by December 2023.

Conclusion

Increased production costs, severe dry weather that impacted yields, numerous supply chain issues due to the COVID-19 pandemic, and the Russia-Ukraine War impacted not only the availability of wheat but also that of other key inputs for baked goods. Consequently, prices for baked goods continued to rise, even as wheat prices fell throughout the first half of 2023. Furthermore, changes in demand patterns as the pandemic ended, as well as worker shortages, added additional layers of inflationary pressure to prices for baked goods.

The post-COVID situation remains unstable. Severe droughts continue to impact large portions of the country and affect domestic wheat production. Poor growing conditions also have hampered sugar production overseas, and a number of companies continue to report price increases for various inputs such as flour, eggs, flavorings and extracts necessary for baked goods. Despite changes in input prices, consumer demand may be the most important determinant to baked goods inflation.

This Beyond the Numbers article was prepared by Sarah Berman and Joe Nunes. Joes Nunes is an economist in the Office of Prices and Living Conditions (OPLC), U.S. Bureau of Labor Statistics. Email: nunes.joseph@bls.gov; telephone: (202) 691-7839.

If you are deaf, hard of hearing, or have a speech disability, please dial 7-1-1 to access telecommunications relay services or the information voice phone at: (202) 691-5200. This article is in the public domain and may be reproduced without permission.