Inflation has been raging, both in Poland and in Europe, since 2021. However, its dynamics increased significantly in 2022, which became noticeable for consumers' wallets. Increases in food prices turned out to be quite severe. In 2023, global food prices increased by approximately 20% compared to the previous year. This was one of the highest increases in food prices in history. In Poland, according to data from the Central Statistical Office, the prices of food and non-alcoholic beverages increased by 24% in 2023. What's next? Can we expect a further increase in food prices in 2024?

Inflation changes the dynamics, but it does not want to let up

Inflation, both in Poland and in Europe, has been at the highest level in many years for several months. Citizens of the Old Continent could notice its first signs already in the second half of 2021, but the real "shoot" in inflation occurred in 2022 and reached levels not recorded for a long time. In strong European economies (such as Switzerland, France, Norway and Finland), inflation has reached levels ranging from 4% to 8%, while in some countries it has exceeded 20% (Ukraine, Moldova, Turkey).

In Poland, inflation calculated according to the Eurostat methodology amounted to 10.3% in July 2023, which means that the prices of goods and services were 10.3% higher than a year ago. At the same time, the average inflation in the European Union was 6.1%.

The causes of inflation include many different factors that overlap:

  • Increase in energy prices: Russian aggression in Ukraine resulted in an increase in oil and natural gas prices, which translated into higher prices of electricity, gasoline and gas for households.
  • Increase in labor costs: the increase in energy and food prices translates into an increase in production costs, which leads to an increase in labor costs.
  • Easing monetary policy: Central banks in many countries, including Poland and the euro zone, have lowered interest rates to stimulate the economy during the COVID-19 pandemic. This caused an increase in the money supply in the economy, which contributed to an increase in inflation.

Inflation and the related increase in energy prices and labor costs resulted in an increase in the costs of food products. An additional factor was the war in Ukraine, which caused disruptions in food supplies from that country, which contributed to the increase in food prices (including cereals, vegetable oils and meat). In Poland, inflation in 2021 was 5.1% and in 2022 13.6%. The increase in food prices was one of the main factors driving inflation in Poland. In 2021, food prices increased by 7.7% and in 2022 by 19.7%. In turn, in Europe, inflation in 2021 was 5.3% and in 2022 7.5%. The increase in food prices was one of the main factors driving inflation in Europe. In 2021, food prices increased by 5.7% and in 2022 by 15.4%.

Recently, the first signs of slowing inflation have been observed. In Poland, monthly inflation decreased by 0.2% in July 2023. In the euro area, month-on-month inflation also fell by 0.2% in July 2023. Experts expect that inflation in Poland and Europe will decline in the coming months. However, due to the ongoing war in Ukraine, it is uncertain whether inflation will fall to pre-pandemic levels.

Will food prices increase in 2024?

Experts agree that the increase in food prices will not end in 2023. Food prices will continue to rise in 2024, although at a slower pace than this year. This will be related to a gradual slowdown in inflation, although its dynamics will depend on many different factors and the entire process will certainly be different in each country. Analyzes should take into account several factors that may hinder the decline in food prices. One of them is the protracted conflict in Ukraine, which has far-reaching economic and geopolitical consequences, climate instability resulting in reduced crop yields, and constantly rising production costs (related to high energy prices).

Some experts in Poland have quite negative visions regarding the increase in food prices in 2024, predicting that it will be dynamic and strongly felt by consumers. This is to be related not only to inflation itself, but also to the expiry of the government's anti-inflation shield, which assumes zero VAT on food products. Just restoring VAT on food products could increase Poles' spending by PLN 518 per year. The goods covered by the anti-inflation shield until the end of 2023 include:

  • meat,
  • fish,
  • vegetables,
  • fruit,
  • dairy,
  • bread and other cereal products,
  • part of the drinks.

These are the food products that would increase in price the most and the fastest, unless the government's anti-inflation shield is extended.

The forecasts of Pekao analysts are slightly more optimistic, although they assumed in advance the scenario of expiring the zero VAT rate on food at the beginning of 2024. According to them, the expiration of the anti-inflation shield may accelerate consumer inflation (CPI inflation) by approximately 0.8 percentage points. Higher food prices would persist for the first few months of 2024, but it is assumed that food inflation will start to decline later in the year. At its lowest point, it may even drop below 5%, although experts predict that it will approach 7.3% by the end of 2024.

Food price inflation has its own rules

Making accurate estimates in the case of food prices is difficult, especially since the dynamics of food price growth differs from the general inflation rate. This was demonstrated by an analysis conducted by UCE Research and the WSB Merito University in Warsaw, which shows that food prices are growing faster than the inflation rate itself (it is the average value for all products in the economy).

The above analysis shows that the growth rate of food prices is decreasing, although it exceeds inflation. In May 2023, food prices increased by 19.9%, in June - by 18.1%, and in July - by 15.5%.

However, the expected dynamics of food price growth is consistent for a large part of the globe - not only Poland or Europe. Analyzes for the United States indicate a slowdown in the growth of food prices, but not a decline. It is expected that in the USA the prices of food products will increase by approximately 2.8% (though the prices of catering services themselves may increase more – even by 5.1%).

And when food prices fall and inflation itself finally slows down. Currently, experts and analysts are very cautious in their forecasts. The International Monetary Fund (IMF) forecasts that inflation in the euro area should fall to 4.4% at the end of 2023 and 2.3% at the end of 2024. However, this depends on many factors, including the climatic situation and, of course, the war in Ukraine. One thing is certain - an increase in food prices should still be expected, although the dynamics of this increase may be lower than in previous years, and if positive scenarios come true, price increases in 2024 may be the last before the end of inflation.