Spain: Oils have risen in price by 56%, dairy and eggs by 16% since January 2021

“The increase in the prices of food raw materials which is taking place since the beginning of 2021 on a global scale is having a strong impact on the consumer prices of these products. This also explains an important part of the increase in inflation in recent quarters”, according to the Banco de España’s report (Fig. 1). It analyzes the price of basic foodstuffs, such as oils, meat, eggs, dairy products, among others, both in the eurozone (EZ) and in Spain.

Significant global increase in food prices

According to the Banco de España, the weight of food in the shopping basket regulates to a large extent the heterogeneous impact of the increase in the price of food commodities in different countries.

Thus, in the EZ as a whole, this weight stands at 17% and food has contributed 0.9 pp (percentage points) to the increase in the harmonized index of consumer prices (HICP), on average, in the last three quarters. In Spain, the weight amounts to 22% and the average contribution has been 1.4 pp. According to the most recent information, corresponding to June, the contribution of food to the overall inflation rate in Spain was 2.9 pp, compared to 1.7 pp in the EZ (Fig. 2).

More intense and generalized increase in historical terms

The report shows that price increases are very widespread and intense in the EZ. Extremely high rates are being recorded in historical terms in June 2022, compared to two previous episodes of strong rise in raw materials, 2001-2002 and 2007-2008 (Fig. 3).

In June 2022, the price of oil in the EZ rose by 29% year-on-year, and cereals and coffee by 11%, while dairy and eggs, and meat rose by around 12%. In Spain, the price of oil increased by 37% year-on-year, and cereals, coffee, dairy products and eggs, and meat by around 16%, 11%, 16% and 10%, respectively.

Since January 2021, in the EZ, oil is now 34% more expensive, and cereals and dairy and eggs are 12% and 13% more expensive, respectively. In Spain, prices have risen most notably since the beginning of 2021: 56% for oil, 17% for cereals, 16% for dairy and eggs, and 10% for meat (Fig. 4).

The European framework's buffer role

In the EU, the implementation of the CAP cushions the transmission of shocks in global food commodity markets to consumer prices. Fig. 5 shows that the reference prices of food commodities in the EU have been in historically more moderate ranges of variation than those of international prices; this can be seen particularly clearly in dairy products and eggs, and sugar.

Will the uptrend continue?

According to the Banco de España, a temporary increase in the rate of change in prices for food commodities by 10% “will affect rising headline inflation in the EZ (HICP) about three tenths after 12 months”. This rise, moreover, occurs gradually, "reflecting the fact that producers along the value chain and retailers initially absorb, and progressively pass on, the higher cost of raw materials to the final consumer."

"The future evolution of food prices is subject to high uncertainty," the report states. Although available forecasts point to a certain downward trend in the coming years (Fig. 6), the persistence of the conflict resulting from the Russian invasion of Ukraine will continue to exert upward pressure on these prices, both directly and indirectly.

On the one hand, these two countries are major producers of food commodities, and their production and export capacities are significantly limited. On the other hand, the conflict is affecting energy and fertilizer prices, two crucial supplies for agricultural activities.

The full report in Spanish here: El aumento de los precios de las materias primas alimenticias y su traslación a los precios de consumo en el área del euro. Artículos Analíticos. Boletín Económico 3/2022. (bde.es)