Food Prices in Spain 34% Higher Than Pre-Pandemic, ECB Warns of Disproportionate Impact on Poorest Households

Rising Food Prices in Europe: A Bitter Pill for Consumers

Since the end of 2019, food prices across Europe have significantly increased, with Spain seeing a 34% rise. This surge impacts consumers' perception of overall inflation, even as the European Central Bank (ECB) aims for a 2% medium-term inflation target.

The Escalating Cost of Groceries

An ECB blog post highlights that consumers are paying approximately one-third more for food than before the pandemic. This disproportionately affects lower-income households, who allocate a larger share of their budget to essential goods. Across the Eurozone, food price increases range from 20% in Cyprus to 57% in Estonia.

Other European countries have also experienced substantial increases: France (27%), Italy (28%), Greece (30%), Portugal (32%), Germany (37%), Croatia (47%), and Slovakia (52%). The Baltic states have seen increases exceeding 50%.

Factors Driving Food Price Inflation

The Russia-Ukraine war significantly impacted energy prices, especially gas, and fertilizer costs, which consequently raised food prices across the Eurozone, particularly in the Baltic countries, through 2023. Increased commodity prices, labor costs, and supply shortages due to climate-change-related events like droughts and floods have also contributed.

Specifically, the prices of beef, poultry, and pork have risen by over 30% since late 2019. Dairy products have also seen significant increases, with milk prices up approximately 40% and butter up 50% compared to pre-pandemic levels.

Certain commodities have experienced even more dramatic price increases, including coffee, olive oil, cocoa, and chocolate.

The Impact of Climate Change

Prolonged droughts in southern Spain during 2022 and 2023 have driven up olive oil prices. Unfavorable weather conditions in exporter countries like Ghana and Côte d'Ivoire have led to higher coffee and cocoa prices. ECB economists anticipate the impact of climate change to intensify.

Inflation and the Consumer Experience

While overall inflation in the Eurozone has decreased from a high of 10.6% in October 2022 to around 2% recently, food price inflation remains elevated at 3.2% as of August. Although wages have increased, offsetting some income losses, many households feel poorer when shopping for groceries.

Approximately one-third of the population is concerned about affording the food they want to buy. This sentiment reflects the reality that food prices remain stubbornly high, about one-third higher than pre-pandemic levels.

Disproportionate Impact on Low-Income Households

Lower-income households allocate a larger proportion of their income to necessities such as food, energy, and housing. This makes them disproportionately vulnerable to price increases in these categories. As a result, they experience higher effective inflation rates than wealthier households and must make larger cuts in other expenses to balance their budgets.

Food items make up 20% of the Eurozone’s Harmonized Index of Consumer Prices (HICP), which is more than double the weight given to energy.

The Consumer Perspective

An ECB study emphasizes that many consumers feel poorer when they go to the supermarket. The study acknowledges that rising food costs hit lower-income households the hardest, forcing them to cut back on other expenditures. This situation contributes to feelings of financial strain and economic inequality.

Examining the root causes

The rising cost of energy, particularly gas, following the war in Ukraine, has played a significant role, as has the increasing market value of agricultural raw materials, largely due to damage from climate change such as droughts and floods. An increase in labor costs for companies operating within the sector has also contributed to shelf price increases. Identifying cyclical factors within this phenomenon is becoming increasingly difficult.