The war in Ukraine, the policies of the parties, the behavior of consumers are the main points that keep food prices high
By Chrysostomos Tsoufis
When towards the end of August 2021, inflation started to accelerate, the phenomenon was attributed to the end of the pandemic. Then came the Russian invasion of Ukraine, the double-digit rates came, but it took until November 2022 for the central banks and especially the FED to abandon the term “transitional”.
We have reached June 2023, the rate hikes are back to back but o inflation insists. And increases in food remain in double digits despite the fact that energy prices have almost returned to pre-war levels. What happens;
A first explanation has to do with the fact that – we may sometimes forget – but the war on Europe’s borders continues. Russia has agreed to a 2-month extension of the agreement for the safe export of Ukrainian grain, but Kiev complains of obstacles, while the quantities to be made available are smaller anyway due to the war. The problems in the supply chain therefore remain.
A large part of the responsibility, for most the biggest, lies with businesses. The term greedflation or else the inflation of greed is making its presence felt more and more as businesses are “accused” of keeping the prices of their products high in order to increase their profits. Italy’s central banker himself, Fabio Panetta, said that while production costs are falling, retail prices are rising and business profits are rising with them. All relevant analyzes bring the example of the automobile industry. Europe’s 5 biggest increased their profits from €24bn in 2019 to €68bn in 2022 despite selling 25% fewer cars. The same goes for many food chains.
In some cases, companies have arguments, and even eighty. One of them is the labor cost which has increased significantly. The 4th quarter of 2022 e.g. wages in Europe increased by 5.1% on average. Several countries recorded double-digit rates, above inflation in fact. Economists call the phenomenon the wage/price spiral. As prices rise, wages rise – especially in markets with labor shortages combined with low birth rates – and this leads to further price increases. In the last 2 s/t given by Christine Lagarde he has referred to the collective agreements signed across Europe which, let’s say, are considered by Frankfurt to be “generous”.
Consumers are also to blame. It is not possible for prices to be sky high but for consumption not to decline even for items that are not considered essential. In Greece e.g. 2022 ended with inflation of 9.3% but private consumption grew by 7.2% in Budget 2023. The market saying goes that the cure for high prices is high prices. At some point, the consumer will call it quits, cut back on purchases, and prices will begin to drop.
Some values do not have a short cycle. For example rents, school fees and even cinema tickets change once a year unlike petrol station or supermarket prices and therefore follow the general trend with a delay.
Climate change could not be missing here either. Rains, fires, glaciers and drought will appear more and more frequently affecting the supply of products and therefore their prices. Let’s take rice for example. The bad weather in China and Pakistan they reduced harvests resulting in the biggest shortage in 20 years as demand also increased as many consumers switched to rice after Ukrainian grain stopped coming. As a result, the price of rice soared to its highest point since 2011.
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