Food price inflation now worries the ECB

Brussels – Food inflation is now a real concern. The European Central Bank has already set its sights on food price trends, or rather, “food, alcohol, and tobacco”, one of the reference categories (along with energy, non-energy industrial goods and services) for calculating cost-of-living trends. Still, now the ECB is putting one component under the magnifying glass, the one that is starting to worry the most, because it is significantly above average and targets. If the general inflation rate is now at 2 per cent, the index for food is at 3.2 per cent, which is higher than the general trend.

Food cost: ECB data

The situation is now such that it warrants a separate chapter of study. The general fact is that “to put a meal on the table, consumers are paying roughly a third more than before the pandemic.” That said, the Frankfurt experts go on to review the price increases. Prices for beef, poultry, and pork are now more than 30 per cent higher than at the end of 2019. In the same timeframe, milk prices have risen by about 40 per cent, and butter prices by about 50 per cent compared to pre-pandemic levels. The prices of coffee, olive oil, cocoa and chocolate rose “even further.”

Food inflation influences expectations

The ECB is aware that households pay close attention to the cost of shopping. Many across Europe also do their shopping every day, and the perception of the rising cost of living comes from this continuous and tangible confrontation with price lists. The rises are visible, which is also why, the authors of the study recognise, “food price developments represent a major challenge for the ECB in its pursuit of price stability,” as “food prices have a constant impact on everyone and therefore also influence inflation expectations” as well as redefining purchasing behaviour and purchase propensities, with the resulting implications for consumption and domestic demand.

In Frankfurt, there is now a recognised need to “closely monitor food price developments, making them particularly relevant in the ECB’s current analyses.” Not least because, “in addition to short-term cost pressures, food price inflation is also influenced by long-term structural forces” such as climate change. “The prolonged droughts in southern Spain in 2022 and 2023 led to sharp increases in olive oil prices—notes the European Central Bank analysis—while coffee and cocoa prices have soared as a result of adverse weather conditions in key exporting countries such as Ghana and Côte d’Ivoire.”