Food Price Inflation Rises Again Despite Falling Overall Inflation Rate

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As inflation rates in major countries slow down, food inflation is resurging, particularly in Europe. While food prices remain stable, it is analyzed that companies are pushing up grocery prices by focusing on profit expansion.

According to the Wall Street Journal (WSJ) on the 9th (local time), the Eurozone recorded a 15.4% increase in food, alcoholic beverages, and tobacco prices over the one-year period ending in March. Compared to energy prices, which fell by 0.9% during the same period, the rise is significant.

This increase in grocery prices runs counter to the recent trend of slowing overall consumer price inflation in Europe. The Eurozone inflation rate peaked at 10.6% year-on-year in October last year and dropped to 8.5% by February this year. The slowdown in energy price increases from 41.5% to 13.7% during the same period pulled down overall inflation.

On the other hand, the food price inflation rate has steadily increased, surpassing 10% in June last year, 15% in October, and soaring to 17.7% in February this year. Looking at February’s food price inflation by country, major regions such as Germany (22.3%), the Netherlands (18.4%), Spain (16.7%), France (16.1%), and Italy (13.5%) all saw significant increases. Hungary’s food prices rose by a staggering 47%.

In the United States, although inflation and employment are slowing, food prices remain high. As of February, U.S. food prices rose 10.2% over the year, nearly double the energy price increase (5.2%). Meanwhile, overall inflation fell to 6.0% in February. Nonfarm payrolls in March also slowed to 236,000 from 326,000 in the previous month.

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With overall inflation indicators showing a slowdown, experts point to companies as the cause of rising food prices. In fact, food prices are falling, but companies are raising selling prices to increase profits, reflecting this trend. According to the United Nations Food and Agriculture Organization (FAO), the global food price index (an index of food prices traded on international markets) has steadily declined from 159.7 in March last year to 126.9 in March this year. Klaus Vistisen, an economist at Pantheon Macroeconomics, explained, "The only way to explain these contrasting price indicators related to groceries is corporate profit expansion."

According to ING Bank, profits in Germany’s agricultural sector increased by 63% over three years from the end of 2019, just before the COVID-19 pandemic, to the end of 2022. ING Bank explained, "Price increases across sectors such as agriculture, construction, trade, transportation, and hospitality can be explained by corporate profit growth, not by high energy or commodity costs." Initially, companies raised product prices due to rising costs, but now they are increasing prices to expand profits, stimulating grocery prices.

Rising food prices are expected to exacerbate the financial difficulties of low-income and vulnerable groups. This could lead to a vicious cycle of workers demanding higher wages, increased burdens on companies, and further price hikes, fueling inflation. European central banks are also closely monitoring corporate profit expansion.

Fabio Panetta, a member of the European Central Bank (ECB), pointed out, "Opportunistic behavior by companies could delay the decline of core inflation." Huw Pill, chief economist at the Bank of England (BOE), stated, "Whether food price increases are due to climate, war, or corporate profits, central banks may need to respond with higher interest rates."

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