Although inflation has decreased, food inflation has risen once more.

Eurozone grocery prices rise 17.7% in February
In the US, food prices rise twice as much as energy
Companies focus on increasing their profits… Criticism of the ECB’s “opportunistic behavior”

Amid slowing inflation in major countries, food inflation is raising its head again, especially in Europe. Food prices are stable, but analysts say that companies are pushing up food prices as they focus on expanding profits.

According to the Wall Street Journal (WSJ) on the 9th (local time), in the case of the eurozone, food, alcohol and tobacco prices increased by 15.4% in the year to March. Compared to the 0.9% drop in energy prices during this period, the increase is very large.

This rise in food prices is in direct contrast to the recent slowdown in overall consumer price inflation in Europe. Inflation in the eurozone peaked at 10.6% year-on-year in October last year and fell to 8.5% in February this year. The pace of increase in energy prices slowed from 41.5% to 13.7% over the same period, pulling down overall inflation.

On the other hand, food price inflation has been steadily increasing, exceeding 10% in June last year and 15% in October, soaring to 17.7% in February this year. Looking at food prices by country in February, major regions such as Germany (22.3%), the Netherlands (18.4%), Spain (16.7%), France (16.1%), and Italy (13.5%) showed large increases. In Hungary, food prices rose by 47%.

In the United States, prices and employment are slowing, but food prices remain high. As of last February, food prices in the US rose 10.2% over the past year, nearly double that of energy (5.2%). On the other hand, the overall inflation rate fell to 6.0% in February this year. In March, new non-agricultural employment also slowed to 236,000 compared to the previous month (326,000).

As the overall price index is showing a slowing trend, experts are pointing to companies as the cause of the rise in food prices. In fact, it is an analysis that reflects the fact that companies are raising selling prices to increase profits while food prices are falling. According to the Food and Agriculture Organization of the United Nations (FAO), the world food price index (food price index traded in the international market) has been on a downward trend from 159.7 in March last year to 126.9 in March this year. “The only way to explain (the conflicting) price indicators for food products is the expansion of corporate profits,” said Klaus Wistessen, an economist at Pantheon Macroeconomics.

In the three years from the end of 2019, right before the COVID-19 pandemic, to the end of 2022, German agricultural sector profits increased by 63%, according to ING Bank. “The rise in prices across sectors such as agriculture, construction, trade, transport and hospitality can be explained by higher corporate profits, not higher energy and commodity costs,” ING Bank explained. Analysts say that companies initially raised product selling prices due to rising costs, but now they are stimulating food prices by raising prices to expand profits.

The rise in food prices is expected to add to the hardships of living for the poor and the vulnerable. This, in turn, could lead to a vicious circle that stimulates inflation, such as wage hike demands by workers, increased burden on companies, and product sales price hikes. The European Central Bank is also keeping an eye on expanding corporate profits.

Fabio Panetta, director of the European Central Bank (ECB), pointed out that opportunistic corporate behavior could delay the decline in core inflation. Hugh Phil, chief economist at the Bank of England (BOE), said: “Whether food prices are attributable to climate, war or (corporate) profits, the central bank may have to respond with higher interest rates.”