Irish consumers set to face higher food prices

0

For central bankers and policymakers, the past decade has been pretty straightforward. Growth was sluggish, particularly in Europe and Japan, and inflation was conspicuously absent, meaning there were few hard choices to be made.

Alas, all of that has changed dramatically in the past six months, and monetary policy supervisors now face serious challenges and, in many ways, a very unenviable task.

Towards the end of last year, as the world emerged from Covid restrictions against the backdrop of a relatively successful vaccination programme, it became clear that supply chains were badly damaged and could not cope with the resurgence of demand.

Widespread shortages and rapid price increases became a problem, but the consensus was that these supply-side difficulties would ease and inflation would stabilize again. Unfortunately, this did not take into account the brutality of Russian President Vladimir Putin.

Any inflationary issues that existed in January have been greatly exacerbated. Levels of inflation not seen since the aftermath of the second oil crisis in the late 1970s are now being recorded in many countries.

Initially, the main price pressures came from energy and related products, as oil, natural gas and coal prices soared. The government stepped in again this week with a package of measures to ease pressures from rising fuel bills by temporarily reducing the VAT rate on gas and electricity bills to 9%.

The move will save households €50 on the annual gas bill and €70 on the electricity bill. These savings are quite minimal but are of some help for financially stressed households.

Energy costs will be less of an issue in the summer months, but a major concern now is what might happen to food prices in the coming months.

The annual rate of food price inflation in Ireland reached 3% in March, the highest annual rate since December 2008. In the United States this week, inflation in March reached 8.5% and prices food increased by 8%. Inflation in the UK hit a 30-year high of 7%, with food price inflation at 5.8%.

The Food and Agriculture Organization of the United Nations, FAO, recently revealed that its monthly global food price index has hit a new high. The pressures are rising.

World wheat prices are more than 73% higher than a year ago, which is mainly a consequence of the war in Ukraine, and it is difficult to envisage a drop in these prices as long as the war persists. It also remains to be seen whether there will be a large wheat harvest in Ukraine next year.

However, it is important to recognize that input costs for agricultural production here in Ireland had risen sharply even before the wild invasion. These costs included heating, electricity, fuel, fertilizer and labor costs.

These pressures have been exacerbated by the crisis in Ukraine and it seems inevitable that primary producers will continue to feel a greater margin squeeze in the coming months. The share that will be passed on to the consumer will be largely determined by the behavior of the retail grocery sector.

There is of course a limit to the extent to which primary producers can be constrained and remain in business, so it seems very likely that Irish consumers will face higher food prices over the coming months.

Given how accustomed consumers have become to squeezing food prices due to intense competition in the domestic retail market and competition from imports, a spike in food prices would be a shock. important.

Politically, this would be much more difficult and controversial than energy costs. Rising food prices tend to be very controversial and, of course, the government has set a precedent with its financial intervention in energy consumption markets.

The Ukraine war on top of the Covid hardship is just a perfect inflation storm, and for those of a certain age, the experience of the two oil shocks of the 1970s resonates right now.

Share.

Comments are closed.