Food price hikes slow to pre-Ukraine war levels as inflation eases in OECD countries

09 Apr 2024 --- Food inflation in the world’s wealthiest nations has fallen to levels from before Russia’s full-scale invasion of Ukraine and declined for 15 consecutive months, reaching 5.3% in February versus 6.3% in January, according to the latest report from the Organisation for Economic Co-operation and Development (OECD).

In 2022, food inflation surged amid lower trade, higher energy costs, unexpected droughts and COVID-19 supply chain issues. The World Food Programme estimated that higher food prices contributed to a record 333 million people suffering acute food insecurity last year.

However, OECD food inflation in February was reported lower than headline inflation for the first time since November 2021. Headline inflation, which stood stable at 5.7% in February, is calculated based on the Consumer Price Index.

Headline inflation was below 2% in seven OECD countries and remained negative in Costa Rica. It fell in three-quarters of the OECD’s 38 member countries, with the largest monthly declines recorded in Poland and Sweden.

Türkiye experienced the most significant rise in headline inflation, which experts attribute to a rapid increase in food inflation, mainly linked to higher import costs amid a decline in the local currency.

According to OECD data, energy inflation increased but remained moderately negative at minus 0.5% in February, despite strong energy inflation in Türkiye and Colombia. OECD core inflation (excluding food and energy sectors) continued to decline but remained high at 6.4%.

US and EU recovery
Inflation declined most sharply in the US and Eurozone as food and energy prices dropped significantly.

“After a strong run throughout much of 2021 and 2022 [in the US], food price inflation settled down to a more moderate trend of 0.2% monthly gains in 2023,” said Michael Feroli, chief US economist at J.P. Morgan, in February.Inflation dropped most significantly in the Eurozone and US as food prices improved.

“We look for similarly unexciting increases moving forward.”

Cocoa prices have been particularly volatile as El Niño weather patterns flooded West Africa’s growing region with torrential rains, causing a production shortfall and a ripple effect in markets.

In his State of the Union Address, US President Joe Biden called out brands for using “shrinkflation” tactics to alleviate record-high cocoa prices amid a cost-of-living crisis.

In the Eurozone, year-on-year inflation measured by the Harmonised Index of Consumer Prices fell to 2.6% in February versus 2.8% in January. The decline in food inflation was about twice as large as that of the OECD, while core inflation declined at a similar pace to that of the OECD.

Post-Brexit problems
In the UK, food and non-alcoholic beverage prices were slightly below the OECD average in February. However, the rise was the lowest since 2022 and below the 45-year high of 19.2% in March 2023.

Meanwhile, there are growing concerns over potential price hikes and possible supply shortages for certain products due to the UK government’s decision to levy post-Brexit charges on imports of some key EU food products later this month.J.P. Morgan expects food deflation in China to end this year.

Food deflation in China
China, which is not an OECD member, is contending with food deflation spurred by volatile pork prices.

“Multiple factors have contributed to deflationary pressure in China, including global commodity price declines, food price drags and policy support for supply rather than demand,” said Haibin Zhu, chief China economist at J.P. Morgan, in February.

“However, we expect deflation will end, but low inflation will stay in place in 2024.”

Meanwhile, Rabobank analysts expect the global poultry market to recover after a weak second half of 2023 but warn geopolitical tensions causing distribution challenges will remain an issue.

By Joshua Poole

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