Thanksgiving: Why eggs cost more this year

The average cost of a traditional Thanksgiving dinner for ten fell five per cent to $58.08 this year, according to the American Farm Bureau Federation's annual survey. Eggs went the other way. Their price rose by more than fifty per cent as avian influenza returned.

The fall in the total is the second in a row. The survey's bill peaked in 2022, when feed, fuel and fertiliser costs were still passing through to shop prices after the invasion of Ukraine, and it has eased since as those input costs came down. Turkey, the biggest item on the list, was cheaper this year. The meal is still dearer than it was before the pandemic, since slower inflation slows the rise in prices rather than reversing it.

Egg prices have been here before. They hit a record at the start of 2023, after the first waves of the outbreak, then fell back through the middle of the year as flocks were rebuilt. This autumn's rise reflects fresh infections in layer flocks as migrating birds moved south, arriving just as demand for holiday baking picked up.

Bird flu beats the averages

The survey shows the limits of aggregate price measures. Broad food disinflation has given households welcome relief, but a disease outbreak or a bad harvest can push up the price of a staple overnight. Monetary policy can rein in demand. It cannot vaccinate chickens.

The distinction matters for central bankers. Measures of core inflation, which strip out food and energy, came into wide use in the 1970s precisely because prices in those categories are driven by weather, disease and geopolitics rather than by the balance of demand and supply in the wider economy. The Federal Reserve looks through such shocks as long as they do not change what households expect inflation to be. The risk is that repeated spikes in highly visible prices do shift those expectations, even when the averages are calm.

How a flock becomes a price spike

The current outbreak of highly pathogenic avian influenza reached American commercial poultry in February 2022 and has flared with every migration season since, as wild birds carry the virus along their flyways. When a case is confirmed the whole flock is culled, and a single large layer operation can house millions of hens. Replacing them takes months, because young birds must be raised to laying age and barns cleaned and cleared first. Demand for eggs barely moves when prices rise, and it peaks with holiday baking, so a modest loss of supply turns into a large jump in price.

The virus has also spread beyond poultry. It was found in dairy cattle in Texas in March, the first detection in American cows, and has since turned up in herds in several other states. That widens the pool of infection and makes a quick end to the outbreak less likely.

Rules on how hens are kept add to the strain. California's Proposition 12, which took full effect in 2022, requires eggs sold in the state to come from cage-free hens, and several other states have passed similar laws. Cage-free production costs more, and it shrinks the pool of eggs that can be shipped into those markets when supply runs short.

Vaccination is the obvious remedy, and it has not been used at scale. Poultry vaccines exist, but many countries that buy American poultry restrict imports from flocks that have been vaccinated, because vaccination can make it harder to prove that birds are free of the virus. Producers and regulators have so far judged the risk to export markets larger than the cost of culling. That trade-off keeps supply vulnerable to each new wave of infection.

What 2015 suggests

The last comparable episode ended once the virus faded. An outbreak in 2015 wiped out a large share of the laying hens in Iowa, the biggest egg-producing state, and wholesale egg prices spiked that summer before falling back the following year as producers restocked. The difference now is persistence. The 2015 strain burned out within months, while the present one has kept returning for nearly three years.

There are winners. Large egg producers with healthy flocks earn much more when prices spike, and Cal-Maine Foods, the biggest American producer, has reported sharply higher profits during the outbreak. Bakers, restaurants and food manufacturers that use eggs as an ingredient are the losers, along with low-income households for whom eggs are one of the cheapest sources of protein. Their options for substitution are limited, which is why demand holds up even as prices rise.

Why shoppers stay gloomy

Households notice the price of what they buy each week far more than the index that averages it. Eggs, milk and petrol are bought often and their prices are easy to remember, so a spike in any of them does outsized damage to how people feel about inflation. The overall consumer price level is also more than a fifth higher than before the pandemic, and slower inflation does nothing to bring it back down. That helps explain why consumer sentiment surveys remain well below their pre-pandemic readings even as inflation has fallen towards the Federal Reserve's target.

The case against gloom is that eggs carry only a tiny weight in the consumer price index, and wages have been rising faster than prices for well over a year, so real incomes are growing. On that reading the cheaper Thanksgiving meal is the better guide to household finances. The argument is fair as far as it goes, but sentiment follows the prices people see most often. The signals to watch are the Agriculture Department's count of infected flocks and the egg component of the monthly price index, which will show whether the spike is fading or spreading.

Headline inflation is falling, but shoppers judge prices by what they buy every week. Until bird flu burns out, egg prices will probably keep consumer sentiment gloomier than the official figures suggest. Expect egg prices to stay elevated through the winter migration season and into the spring, and to keep showing up in surveys long after the monthly index has moved on.