Food inflation | Why is food so expensive in Europe?

(London) In England, the average price of sliced ​​white bread jumped 28% in April to 1.39 pounds, or C$2.34, from a year earlier.

In Italy, the price of pasta – the staple of the Italian diet – has risen 17% over the past year. In Germany, cheeses are 40% more expensive than a year ago; the increase is 14% for potatoes.

In the European Union, in April, the price of foodstuffs had increased by an average of 17% compared to April 2022. It is even worse in the United Kingdom, where the price of foodstuffs and drinks not alcoholic beverages increased by 19%, the fastest annual inflation rate in more than 45 years. By comparison, in the United States, this rate was 7.7%.

Persistent food inflation is weighing on low-income households and worrying European elected officials.

In Italy, the government called a special meeting to discuss soaring pasta prices.

Yet the main costs involved in making food – fuels, wheat and other agricultural products – have been falling in international markets for nearly a year.

Why are grocery prices still so high? ask the Europeans. As the cost of labor is rising and some middlemen may be taking advantage of this to enrich themselves, prices are unlikely to drop any time soon. In addition, inflation could induce central banks not to lower interest rates, which would harm economic growth.

Why is the price of the grocery cart increasing?

The price of a loaf of bread not only reflects the cost of ingredients, but also the cost of processing, packaging, transportation, wages and storage, not to mention profit margins.

The United Nations maintains an index of world commodity prices (wheat, meat, vegetable oil, etc.). It peaked in March 2022 when Russia invaded Ukraine, which is a very large grain producer.

The war has disrupted grain production there, which has had a global impact by worsening food crises in East Africa and the Middle East.

The worst was avoided thanks to an agreement on the export of cereals from Ukraine. The price of wheat in Europe has fallen by around 40% since May 2022. The world price of vegetable oils has fallen by half. But everything remains expensive: the UN food price index in April was 34% higher than its 2019 average.

The price of energy has also risen, with severe repercussions on the entire food supply chain. The war forced Europe to quickly replace Russian gas with that of other suppliers, driving up the costs of producing, transporting and storing food.

Energy prices have fallen recently, but retailers warn it could take up to a year for the consumer to feel it: energy contracts are concluded months in advance, for long periods .

Labor scarcity in Europe is forcing employers, including food companies, to raise wages to attract workers. This means higher production costs for companies.

Inflation has a broad back

Consumers, unions and some economists suspect companies are raising prices beyond their costs to protect their margins, thus boosting inflation. According to the European Central Bank, at the end of 2022, corporate profits were contributing to inflation as much as wage growth.

Economists at Allianz, a German insurer and asset manager, estimate that 10-20% of food inflation in Europe comes from profits.

But not all economists agree, as there is a lack of detailed data on corporate profits.

Some economists and grocery chains blame the big global food producers for keeping profit margins high by raising prices. In April, the Swiss giant Nestlé said it expected profits of the same order as those of 2022, or around 17%. Nestlé said it raised prices by almost 10% in the first quarter.

Even taking into account transport costs and the lag between the price at the farm and the price in the store, food inflation should have already fallen, estimates Mr. Subran, the economist of Allianz.

In the United Kingdom, we hear another story: Michael Saunders, an economist at Oxford Economics and former head of rate setting at the Bank of England, does not believe that companies are filling their pockets. Most of the inflation is driven by the higher cost of energy and other commodities, he wrote in a note to clients.

Have food prices peaked?

Despite the declines in the price of milk, it is unlikely that food prices in general will fall soon.

On the contrary, policy makers only hope that inflation will slow down.

Timid signs indicate that the pace of food inflation – above 10% per year – may have peaked. In April, the rate fell in the European Union for the first time in two years.

But now, the slowdown should be gradual.

“It appears that food price pressures are taking longer to percolate through the system than we anticipated,” Bank of England Governor Andrew Bailey said this month.

This article was published in the New York Times.