May consumer prices, as reported by the US Bureau of Labor Statistics, were up only 0.2 per cent from the previous month and up just 1.1 per cent compared to the previous year.

This is well below the 2 per cent inflation target of the US Federal Reserve and, in part, explains why the FED has changed its stance on future interest rate increases.

As to why the FED looks warily on inflation numbers that fall below the 2 per cent threshold, here’s how they explain in their own words: “a lower inflation rate would be associated with an elevated probability of falling into deflation, which means prices and perhaps wages, on average, are falling - a phenomenon associated with very weak economic conditions.” (Source: FOMC)

Lower food prices have contributed to the deflationary environment and, judging by current trends in wholesale markets, retail prices may continue to adjust downward. The overall food CPI was down 0.2 per cent in May from the previous month and it is up just 0.7 per cent from last year.

Lower beef and, to a lesser extent, chicken prices have been the key factors pushing down meat prices at retail.

The average price of all beef products at retail in May was $6.02 per pound, 0.4 per cent lower than the previous month and 5.2 per cent lower than a year ago.

The last time May retail prices were lower than April was in May 2012 and this was the largest year over year decline in May beef retail prices since May 2006. But even as prices have declined from the all time records that were established a year ago, they still remain as much as 26 per cent higher than what they were just five years ago (May 2011).

Fed cattle prices in May averaged around $128/cwt, up 14 per cent compared to May 2011 levels while the choice beef cutout for the month of May averaged $217/cwt, 22 per cent higher than five years ago.

So while it is reasonable to discuss the impact of lower beef prices relative to the expansion in supplies, it is also good to take a step back and recognise the level of price inflation that took place in the last five years in the beef complex and what we should expect in terms of retail beef prices going forward as supplies expand.

Pork and chicken May retail prices were mixed, with pork values registering a modest increase while chicken prices declined due to weak prices for boneless/skinless breasts.

The average price of pork at retail in May was $3.78, 0.5 per cent lower than the previous month but 2.3 per cent higher than a year ago. Pork prices have declined notably from the all time record levels in the summer of 2014. However, retail prices have yet to adjust in line with what we have seen in the wholesale market.

The May average price of pork at retail was still about 8.5 per cent higher than retail prices five years ago. On the other hand, the value of the pork cutout is own about 10 per cent compared to what it was in May 2011.

The broiler composite price in May was $1.90/lb, 1.2 per cent lower than the previous month and 1.7 per cent lower than a year ago. Current broiler prices are 11.6 per cent higher than five years ago, very much in line with the price inflation of our calculated wholesale broiler cutout value (+10.1 per cent).

It is often difficult for retailers to lower base prices at retail once they hit certain levels. Lower prices mean lower topline revenues and this is a big negative for any retail manager. One way to get around this is to drive promotions that allow the retailer to move more product but without impacting the revenue line.

The challenge for producers, both beef and pork, is that the so called “sticky” retail prices (i.e. they stay high for too long) negatively impact price transmission signals and could act to depress prices more than warranted in the short term.