Food inflation rises faster than overall prices
The ECB says food costs are up 34% for eurozone households since 2019, a much sharper rise than for other goods. Officials cite higher labour costs and global commodity prices as the main drivers.
Food prices have tended to rise slightly faster than other goods since the euro was introduced in 1999, but “the gap that has accumulated since 2022 is clearly exceptional and persistent,” staff at the European Central Bank (ECB) wrote in a blog post on Thursday.
In August, food prices were 34% higher than in the same month in 2019- compared with 23% for overall inflation during that period.
Food inflation central to ECB concerns
This divergence is one reason “why food prices are of particular interest” to the ECB when setting interest rates, the authors said.
They noted that food prices “carry disproportionate weight in perceptions and expectations of inflation, which are critical for maintaining price stability in the eurozone.”
Impact on poorer households
Rising food prices hurt poorer households the most, as they spend a greater share of their income on groceries, the Financial Times reported.
The ECB kept its key interest rate at 2% earlier this month, though policymakers remain divided on inflation risks. Board member Isabel Schnabel highlighted food inflation as a concern in a Reuters interview.
After surging in 2023 following Russia’s invasion of Ukraine, food inflation accelerated again in August, reaching 3.2% – its fastest pace in 18 months. That is well above the eurozone’s overall 2% inflation rate, which aligns with the ECB’s medium-term target, and higher than the main categories of energy, services and consumer goods.
Climate change and labour costs adding pressure
Labour costs and global food prices, partly linked to climate change, are playing a major role in renewed food inflation, the ECB staff said.
Prolonged droughts in southern Spain in 2022 and 2023 drove sharp increases in olive oil prices. Coffee and cocoa prices rose after extreme weather in Ghana and Ivory Coast. Beef and milk prices are now almost 40% higher than at the end of 2019, while butter and olive oil are up about 50%. Cocoa and chocolate prices have climbed even further.
Variation across Europe
Since late 2019, food price increases have averaged 28% in Italy, 37% in Germany, and more than 50% in the Baltic states, reflecting different exposures to global commodity shocks, labour costs and energy prices.
Although wages have risen, they have only partly offset the loss of real incomes in recent years. “When people go to the supermarket… some feel poorer than before the inflation surge that followed the pandemic,” the ECB staff noted.
Also read: Cyprus leads EU in food waste per capita
For more videos and updates, check out our YouTube channel
