Agricultural and energy costs are falling, but basic commodities remain expensive to consumers.
The most basic staple food, sliced bread. In the UK, the average price of a loaf of bread in April was £1.39 ($1.72), up 28% from the same month last year.
In Italy, prices for spaghetti and other pasta staples in the Italian diet have risen nearly 17% year-on-year. In Germany, the European Union’s largest economy, cheese prices are nearly 40% higher than they were a year ago, while potato prices are up 14%.
Across the European Union, consumer food prices rose on average nearly 17% year-on-year in April, a slight slowdown from the previous month and the fastest growth in more than 25 years. The UK is doing worse than its Western European neighbors, with food and non-alcoholic drink prices rising 19%, the fastest annual pace of food inflation in more than 45 years. By comparison, the annual rate of food inflation in the US was 7.7 percent.
Persistent food inflation is putting pressure on low-income households and troubling European politicians. (In Italy, the government held a meeting this month, soaring pasta prices. )
At the same time, the major costs of producing food products, including fuel, wheat and other agricultural commodities, have fallen on international markets for most of the past year, explaining why consumer food prices in Europe are so high. The question arises as to whether it has stopped. . And food prices are unlikely to fall any time soon, given rising labor costs and the potential for high profits. More broadly, rising inflation puts pressure on central banks to keep interest rates high, which could constrain economic growth.
What is driving food prices up?
Behind the list price of a loaf of bread, not only the primary ingredients, but also the costs of processing, packaging, transportation, wages, storage, and company mark-ups are included.
A UN index of global food prices such as wheat, meat and vegetable oil peaked in March 2022, shortly after Russia’s invasion of Ukraine, one of the largest grain producers. The war disrupted grain and oil production in the region and affected the world. Worsening food crisis in East Africa and parts of the Middle East.
But the worst was averted, thanks in part to a grain export agreement from Ukraine. Wheat prices in Europe have fallen about 40% since May last year. Global vegetable oil prices have fallen by about 50%. But there is still a way to go. The UN Food Price Index in April was 34 percent higher than the 2019 average.
Apart from commodity prices, Europe is seeing a particularly severe rise in costs along the food supply chain.
Energy prices soared as the war forced Europe to rapidly replace Russian gas with new sources, raising the costs of food production, transportation and storage.
Wholesale energy prices have fallen again recently, but energy contracts were signed months ago, likely reflecting higher prices, so by the time consumers start to realize the benefits could take a long time, possibly up to a year, retailers warn.
Employers, including food companies, have also been forced to raise wages to attract workers as Europe’s labor market tightens against the backdrop of high job openings and low unemployment. This drives up costs for businesses, including in the food sector.
Is the price staying high due to profiteering?
Consumers, unions and some economists are increasingly skeptical that inflation will be kept unnecessarily high by raising prices above cost to protect profit margins. .At the end of last year, the European Central Bank Earnings contributed as much to domestic inflation as wage increasesbut didn’t say whether there were any industries that made excess profits.
Economists at German insurer and asset manager Allianz estimate that 10% to 20% of food inflation in Europe could be due to profiteering. “There are parts of food price inflation that are not easily explained,” said Allianz chief economist Ludwik Subrun.
But the lack of detailed data on corporate profits and supply chains has created rifts in business opinion.
Some economists and food retailers point out that: Global leading food producer, maintaining double-digit profit margins while increasing prices. Swiss giant Nestlé said in April that it expects a profit margin of about 17% this year, about the same as in 2018, but reported a price hike of almost 10% in the first quarter.
Sablan said food inflation would be lower by now, even after accounting for costs such as transportation and delays in setting prices from farm to store.
In Britain, some economists tell a different story. Michael Saunders, an economist at Oxford Economics and a former rate setter at the Bank of England, said in a memo to his clients in May that “greedflation” was not to blame. He said most of the rise in inflation reflected higher prices for energy and other commodities.
He said total profits for UK non-financial companies, excluding the oil and gas industry, have declined rather than increased over the past year.
The UK competition regulator also said it saw no evidence of competition concerns in the food sector, but said there were competition concerns. step up investigation “Cost of living pressure”.
Have food prices peaked?
Despite being heavily advertised milk price cut Food prices in the UK are generally unlikely to fall in the near future.
Rather, policy makers are watching a slowdown in inflation.
There are tentative signs that the pace of food inflation, a double-digit increase in annual prices, has reached a peak. In April, interest rates fell for the first time in two years in the European Union.
However, it is highly likely that the deceleration from here will be gradual.
Bank of England Governor Andrew Bailey said: “This time around, food price pressures appear to be taking longer than expected to seep through the system.” said this month.
Across the continent, some governments are intervening by capping food prices rather than waiting for economic disputes over corporate profiteering to unfold. In France, the government is pushing for an “anti-inflation quarter”, asking food retailers to cut prices on some products until June. But Finance Minister Bruno Le Maire cautioned earlier this month, saying he hopes food producers will contribute more to the effort. Tax penalties may be imposed to recoup profits If the consumer refuses to return to negotiations, it is done unfairly at the consumer’s expense.
While these efforts may help some shoppers, overall they offer little comfort to Europeans. Food prices are unlikely to fall. The pace of increase will likely only slow in the second half of the year.