Home Commodities Food inflation in rich countries falls to pre-Ukraine war levels

Food inflation in rich countries falls to pre-Ukraine war levels

by SuperiorInvest

Food inflation in rich nations has fallen to its lowest level since before Russia's large-scale invasion of Ukraine, and a slowdown in price growth eases pressure on millions of households affected by the two-year increase in food costs.

The annual change in consumer food prices in 38 industrialized countries fell to 5.3 percent in February, down from 6.2 percent the previous month and well below a peak of 16.2 percent in November 2022, according to the latest OECD data.

Food prices soared in 2022 due to rising energy costs and lower trade caused by the war in Ukraine, while larger-than-expected droughts and Covid-related supply chain disruptions also passed. bill. Higher prices contributed to a record 333 million people becoming acutely food insecure in 2023, according to the World Food Programme.

“We have seen the worst of high food inflation,” said Carlos Mera, head of agricultural products at Rabobank.

“Agricultural commodity prices have fallen significantly over the past two years, from the price spike that followed the invasion of Ukraine, and this is acting as a disinflationary force even in [the] retail level.

Line chart of average annual percentage change in consumer prices for food and non-alcoholic beverages showing that food inflation has fallen sharply in OECD countries

“Supply chains have completely normalized, gas prices have dropped to levels historically considered more normal, and Ukraine's grain exports have resumed through the Black Sea corridor,” said Tomasz Wieladek, an economist at investment company T Rowe Price.

“The disappearance of these factors suggests that global food disinflation will likely continue.”

The OECD is expected to comment on the food price figure, which is the lowest since October 2021, in its broader inflation update on Monday.

Separate figures released on Friday by the United Nations Food and Agriculture Organization (FAO) showed that prices of food products, including cereals, sugar and meat, had generally fallen from their record highs in 2022. .

The FAO Food Commodity Price Index rose marginally to 118.3 in March, after a seven-month decline. But the figure is still 9.9 points lower than last March.

FAO Food Price Index line chart showing commodity prices have declined from 2022 peaks

The decline in food price inflation was widespread across industrialized countries in February, with the latest OECD reading halving or nearly halving from recent highs.

In the United States, annual food price inflation fell to 2.2 percent in February, from a high of 11.4 percent in August 2022 and the lowest since May 2021.

In the UK, food and non-alcoholic drink prices rose 5 percent in the year to February, the lowest since early 2022 and well below the 45-year high of 19.2 percent on record. in March 2023.

Across the eurozone, the annual rate of food and non-alcoholic beverage prices fell to 2.7 percent in March, the first reading below 3 percent since November 2021, according to preliminary Eurostat estimates.

Line chart of the annual percentage change of the consumer price index showing that annual food inflation is declining in many Western countries

Some countries continue to struggle with higher than normal food prices. The March rally in the FAO index was driven by a rise in the prices of vegetable oils such as soybean, sunflower and rapeseed, due to a seasonal decline in production and an unexpected increase in demand from Southeast Asia.

“Overall, food price inflation is coming down in the developed world and emerging markets, but we are seeing areas where things are still tough, especially in countries with currency pressures that rely on imports,” Kiran said. Ahmed, senior economist at Oxford. Economic Sciences.

Turkey, an OECD country, recorded annual food inflation of 70.4 percent in March, as the lira continued to weaken against the dollar. Similarly, food inflation accelerated to an annual rate of 37.9 percent in February in Nigeria, which relies on food imports and recently devalued its currency.

There has also been a steady rise in food prices in many countries where rice is a staple, after an Indian ban on rice exports hit supplies. Standard rice prices rose 25 percent year-on-year in February, according to the IMF, and food price inflation has continued to rise in countries that rely on Indian rice imports, such as the Philippines and Bangladesh, to 3.4 percent and 9.44 percent. in the same month.

However, the decline in wholesale agricultural prices, especially for cereals, indicates that disinflation will continue in most countries in the coming months.

“At past price peaks, after a delay, [agricultural] producers have shifted to meeting demand,” said Steve Wiggins, senior researcher at ODI, a global affairs think tank. “I expect to see prices continue to fall.”

Falling agricultural commodity prices have not stopped consumer food prices from rising overall because commodities represent a relatively small proportion of retail costs.

The price of bread, for example, also depends on the cost of labor, marketing, packaging, energy, distribution, profit margins and promotion. Rabobank's Mera estimates that the price of wheat represents at most 10 percent of the total cost of bread.

Commodity prices are also transmitted to consumers with a time lag, meaning recent declines in agricultural prices will be reflected on supermarket shelves next year.

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