Inflation is raging at its best. And not only in Europe, but practically all over the world. Its effects are felt by millions of people. Especially since the prices of basic products such as energy, fuel and food have increased. And this is a problem not only for consumers, but also for retailers, wholesalers and manufacturers!
Why does inflation affect food prices so much and is there a chance that the upward trend in prices will stop in the coming months? And is the situation the same everywhere in Europe?
Inflation - where did it come from?
To put it very briefly, it can be said that inflation is a consequence of the coronavirus pandemic and the lockdown that has taken place since March 2020. The ongoing war in Ukraine and the sanctions imposed on the Russian Federation do not improve the situation on the European continent.
The rapid defrosting of the economy after the lockdown was one of the factors leading to inflation. The lifting of restrictions resulted in an increase in demand for goods and services (e.g. travel, visits to restaurants), which had been unavailable for many months. The increase in demand allowed entrepreneurs to raise prices without the risk of losing customers. And this was already the first step towards inflation and a strong driver of the price of basic goods such as groceries. On the other hand, it was not easy for entrepreneurs to keep up with the demand for their services due to the need to rebuild supply chains or shortages of logistics services, which also translated into an increase in prices.
Inflation was also directly affected by the increase in electricity, gas and crude oil prices. And this was partly due to environmental and geopolitical reasons. Unfortunately, energy expenditure accounts for a huge part of the costs incurred by both businesses and European households.
Rising food prices around the world
Inflation affected not only European countries, but even became a global phenomenon. Virtually every country in the world has seen an increase in food prices. Growth rates above 5% apply to 83.3% of low-income countries, 90.5% of lower-middle-income countries and as much as 91% of higher-middle-income countries. Many countries have recorded double-digit inflation, and in extreme cases the price growth rate reaches almost 300%! The country where food prices rose the most is Zimbabwe, where prices increased by 286%. A huge increase in prices also applies to Lebanon (142.9%).
And what is it like in Europe? The countries of the Old Continent are also struggling with the increase in food prices, but the situation here is quite diverse. In December 2022, inflation in European countries ranged from 4% to 35%. The smallest increase in prices (mentioned 4%) concerned Switzerland, the highest (35%) - Lithuania. High inflation also affected Estonia (29.8%), Latvia (29.3%) and Slovakia (28.1%). In Poland, in turn, in December 2022, the annual inflation amounted to 22.1%. A slightly better situation (although we are still dealing with double-digit inflation) concerned Iceland (10.2%) and Luxembourg (10.9%).
Have there been any changes in 2023?
The year 2023 brought improvement in some countries, deterioration in others. According to Eurostat data, inflation in February 2023 decreased in 15 EU countries (compared to February 2022), increased in 10 countries, and remained unchanged in 2. The highest annual inflation rates are in Hungary (25.8%), Latvia (20.1%) and the Czech Republic (18.4%). In turn, the lowest annual rates were recorded in Luxembourg (4.8%) and Belgium (5.4%). In addition to food and alcohol, tobacco, services, energy and non-energy industrial goods contributed the most to the annual inflation rate in the euro area.
Do better results in 15 European countries herald the beginning of the end of high prices? According to some experts from the banking sector, the growth rate of food prices will slow down, and at the end of 2023, the dynamics of food and beverage prices should be below 10% year on year. Nevertheless, some experts hold back enthusiastically, pointing out that the fight against inflation may take longer than we expect, and higher prices of goods will not leave us quickly. The initiation of a serious disinflation process may not take place without successive increases in interest rates.
Inflation - impact on food production
High prices are not in the hands of producers. Inflation has increased the cost of food production due to higher prices of energy, fertilizers and animal feed. And this not only makes it necessary to "shift" some of these costs onto the consumer, but also means that many smaller entrepreneurs may simply not be able to afford to continue their business.
The increase in food prices in Europe made traders look for new solutions even more intensively and turned to not only local but also foreign suppliers. Currently, grocery store customers are looking not only for diversified products, but also for goods available at affordable prices. It simply forces traders to look for cheaper and more favorable sources of supply and encourages them to cooperate with foreign wholesalers.
Such a situation may cause that even after inflation subsides, the specificity of European food trade will change, and new paths of supply chains will be effectively fixed on the European trade map.
Do you want to place an order for food products at an attractive price? Contact us and we will discuss the details of cooperation.