The Rationality of USDA’s Retail Food Price Inflation Forecasts

The USDA-Economic Research Service’s “Food Price Outlook” forecast is an important source of information on U.S. retail food prices and widely used by researchers, policymakers, food industry professionals, and the media. Despite their widespread use, these forecasts have not been rigorously evaluated. This study examines the degree to which ERS’s monthly retail food price forecasts are rational, in the sense that they are unbiased and incorporate all information available using the mode forecast rationality test developed by Dimitriadis et al. (2019). The tests were applied to all 22 retail food price series across 18 horizons for all years from 2004 through 2022 (19 years). The study finds that the forecasts are generally rational. Mode rationality cannot be rejected at any horizon for 8 of the 22 price series, rejected at only one horizon for 4 of the 22 price series, and rejected at two horizons for 3 of the 22 price series. There are only three price series for which mode rationality was rejected for a number of horizons: food at home; meats, poultry, and fish; and other foods. Despite the generally positive performance, the forecast methodology was recently retired by USDA-Economic Research Service.