February 2016:
While the overall rate of inflation has stayed low in recent years, at least one commodity has soared in price: Ground beef.
The average price of a pound of ground beef nationally was $2.73 at the end of 2005. Over the next ten years, the price just climbed and climbed, hitting a peak of $4.71 in February 2015, as shown in Figure 1. That’s just amazing.
Yet there are signs that the price of ground beef may finally be heading down. Since February 2015, the price per pound of ground beef has fallen from $4.71 to roughly $4.50 per pound.
Figure 1
Will the price of ground beef drop further? Here’s where the tools of economics can help us. The same forces of supply and demand that helped push up ground beef prices over the past decade are now working in the opposite direction.
First, let’s consider beef exports to the rest of the world. The price of ground beef rose over the past ten years, in part, because demand for American beef increased in countries such as Hong Kong, South Korea, Taiwan, and Japan. But as Figure 2 shows, over the last year or so, beef exports have been falling.
The second reason for the drop in ground beef prices is the end of the Great Drought that started in 2012. As a result, it became much more expensive to grow cattle for beef.
However, recently drought conditions have improved across most of the United States. As a result, it has become much cheaper to grow and feed cattle.
And there’s one more factor influencing the price of ground beef. Ground beef is usually thought to be an inferior good, in the sense that demand falls as income rises. It may be that in the aftermath of the Great Recession, unemployed Americans switched from buying expensive steak and fish to cheaper ground beef, driving up the price. As the economy has improved, consumers may be switching back to more expensive meats again, lowering the demand for ground beef and lowering the price.
As a consequence of these three factors, we would expect that the price of ground beef would continue to fall in 2016.
Note: This textbook-based blog is explicitly non-political. We analyze current events for the beginning economics students without imposing our own views on the topic.
Key Terms
Inferior Good:
A good or service whose demand falls as income increases.
Review Questions
Review Questions for Mandel 2e
Additional Material
Drought Monitor, 2012 and 2015
