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Food prices still a nightmare in major economies

NISARA VADEE, ECONOMIST

The good news is that inflation in some countries is falling, but the bad news is food prices are still high. Although inflation is cooling down, other factors are driving food prices and worsening the pain for consumers.

Americans, for example, are facing the largest increase in food prices since March 1979. According to the Bureau of Labor Statistics, over the last 12 months, American people have confronted soaring grocery prices at 13.1%, which is the highest annual increase in 43 years.

Egg prices are up 38% in the past 12 months, and other prices have also jumped: Flour is up 22.7%, chicken 17.6%, milk 15.6%, ground beef 9.7% and bacon 9.2%. Fruit and vegetable prices have soared 9.3%. The factors behind the rising costs of food include avian flu leading to a shortage of eggs in the United States, coffee crops threatened by severe drought in Brazil, and the war in Ukraine which has led to a spike in wheat prices worldwide.

The worst thing is that food is one of the four basic human needs; people cannot avoid purchasing food even when prices are high. Moreover, food is influenced by global commodity prices, which are largely beyond the control of individual governments.

Energy crisis in Europe affecting food prices

Many countries in Europe are living in a nightmare, haunted by gas shortages that have led to dramatically higher energy bills. The worst is not over, as winter is approaching. Every time energy prices jump, there is a domino effect.

Although world food commodity prices have eased slightly after hitting record highs in the immediate aftermath of Russia’s invasion of Ukraine, consumers are unlikely to get any relief for a while.

Food makers in Europe are still confronted with high energy costs for gas and coal, and the coming winter will boost demand for energy for heating and power generation, likely pushing energy prices higher.

With the rise in their energy costs, food producers will try to raise their prices, and unfortunately that passes through to consumers.

Whether it’s roasting coffee or making sugar from beets, companies so far are only talking about the increase in raw material costs but the worst is still to come as energy prices rise, says Kona Haque, head of research for the commodities trader ED&F Man. Rising raw material, energy and packaging costs have cut revenues and forced companies in Europe to shift production to other regions with lower energy prices. This situation is becoming unbearable, and governments have begun to intervene. The European Union agreed to a US$112-million aid package to help agricultural businesses that have been affected by the rise in energy prices, fertiliser costs and other raw material costs.

In the worst-case scenario, if natural gas shortages persist, energy-intensive food factories across Europe could be forced to shut down, which could result in even higher grocery costs.

Surging grocery prices pushing Britons into ‘food poverty’

The United Kingdom is facing the worst inflation and soaring grocery prices that have pushed people into “food poverty”. Many households are struggling to get by every day amid a sharp rise in the costs of groceries, fuel and energy bills.

When considering common package sizes like a dozen eggs and a pint of milk, the average cost of items has increased by roughly 14.5% from a year ago, with an average increase of 2.8% in June alone. According to the data, purchasing all the necessary goods for an English breakfast now costs £31.46, up from £27.92 in June 2021.

Looking at month-on-month data, prices for sausages, butter, milk and bacon have all increased by more than 5% since May. Consumers are buying fewer things and switching from branded goods to own-label products to save money.

The inflation crisis continues to have a severe negative impact on low-income families. According to the most recent Asda Income Tracker, 20% of UK households now have negative disposable income since their income is insufficient to pay for necessities like groceries, energy bills, transport costs, mortgage or rent.

BUSINESS | DERIVATIVES & COMMODITIES

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2022-08-15T07:00:00.0000000Z

2022-08-15T07:00:00.0000000Z

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