Food Inflation %YOY

Food inflation continues to keep headline inflation at elevated levels

Multinationals should revisit scenario planning to account for the geopolitical, climate, and supply-chain risks that will remain heightened throughout the year. Food inflation is likely to peak before summer, with mild disinflation to follow thereafter, mostly driven by the high base effect of 2022. Multinationals should stay vigilant on implementation of government price controls, as risk of civil unrest increases. B2B and B2C companies may benefit from reassessing marketing strategies to appeal to increasingly value-oriented consumers.


  • The Black Sea grain deal is set to expire on May 18, raising uncertainties amid fears of a global food crisis if it is not extended.
  • Spanish agricultural production has been severely affected by record-high temperatures during a year-long drought, which could potentially lead to crop failures.
  • The avian flu pandemic continues to impact the livestock industry, with over 48 million animals culled across Europe, putting sustained upward pressure on consumer staple prices across the continent.
  • Fertilizer prices have eased from their peak in 2022, but output disruptions continue to cause supply issues and will ensure that overall costs remain historically elevated.

Our View

The European market is going to encounter significant challenges well into 2024, with diminishing household purchasing power alongside sticky-high food prices placing downward pressure on consumer demand. Real wages across Europe declined between 1.1% and 9% over the past year, with Eastern European economies experiencing the most significant decline. Staples such as milk, bread, eggs, and butter have been hit particularly hard, with prices almost doubling in Hungary. This is likely to continue to have a very material impact on consumer shopping behavior, particularly among lower-income consumers.

As of April 2023, food inflation in the euro area has hit a record high of 13.6%, and we expect it to remain significantly elevated well into 2024. Peak food inflation has likely not yet been reached and will only peak this summer before tapering closer to H2 2023, suggesting further risk to the base case. While agro commodity prices have eased compared to H2 2022 and are trading at levels similar to 2021, food prices remain elevated, particularly for processed foods, whereby costs of inputs such as energy, transportation, and labor remain high. The prices are further likely to be exacerbated throughout the year due to food companies’ profit-taking to make up for revenue shortfalls in 2022.

Political factors are also contributing to sticky prices, as several governments in Eastern Europe have demanded curbs on grain flows from Ukraine in favor of local producers, leading to bans on various agro imports. This situation is likely to further strain the already-sensitive produce supply chain, especially during the upcoming summer harvest.

Finally, the risk to the base case has further been heightened due to the increased likelihood of negative external events, such as a sudden departure from the Black Sea Grain Initiative, further spread of avian flu, and climate-induced crop failure. Each of these events has the potential to accelerate food inflation with little warning. Further risks pertaining to the devaluation of the euro may place even further strain on food imports, particularly fruit, vegetables, and fish, which make up over 54% of EU food imports.

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