Asymmetric food price shifts

Data presented by the Hellenic Statistical Authority on Friday showed that prices increased further last month at a time when many were convinced that they would drop a tad.

Although in April food prices showed a marginal decrease of 0.1% compared to March 2023, that was reversed in May with price increases of 1.8% on a monthly basis. In fact, basic food items such as flour recorded an 8% price increase in May compared to April. Year-on-year food prices climbed 11.6%. 

This development postpones until later – at best after the summer – the end of the food price hike cycle, an end which initially market players had estimated would occur at the end of the first half of 2023. That estimate was of course made under the condition there would be no unforeseeable events and based on the existing forecasts about the global production of basic products such as grains and others.

Why do many companies, both domestic and multinational, continue to send price lists with markups, even if they are less intense than last year? There are two main reasons put forward by the market to justify the new round of price hikes.

The first is that last year businesses, industries and retailers absorbed only part of the increase in production and operating costs, because passing on the whole increase would have caused an even greater drop in demand and market shares.

Secondly, there is still stock of raw materials which were procured at high prices, and therefore until these stocks run out the cost will also be passed on to the retail price. Finally, there is also a relatively small portion of companies that price their products at the beginning of each year and do not subsequently proceed with adjustments. These companies had priced their products before the start of the war in Ukraine and are now proceeding with price increases that they did not implement last year.

This is the well-known phenomenon of prices going up like a rocket and down like a feather, observers comment.