Olive oil accounts for half of all food sector inflation, study shows

The persistent profit margins of businesses, also dubbed “greedflation,” and the strong demand for services, thanks to tourism, as well as the increase in Greeks’ income, are the main factors that explain the high levels of inflation in Greece.

Combined with the effect of the floods in Thessaly and the phenomenon of price increases in olive oil, the de-escalation of the index toward 2% is postponed until the second half, according to National Bank of Greece analysts in a special study, “Inflation and Short-Term Challenges,” published on Wednesday.

The consumer price index stood at 3.1% (3.2% for the European Union-harmonized index) in April, while it had fallen to 2.4% in mid-2023. In the eurozone the harmonized index in April was 2.4%.

The study by the NBG Economic Analysis Division, led by chief economist Nikos Magginas, speaks of “unshakable” inflation in the last seven months. This is now mainly attributed to resilient demand, which is reflected in service prices.

NBG predicts a small slowdown to 2.9% in the second quarter of this year and a greater one in the second half, close to 2%, so that it closes at 2.6% on average in 2024, precisely as the government also predicts in its Stability Program. In a recent similar study Alpha Bank had predicted 2.6-3%. However, the NBG analysts also express some uncertainty, due to the accelerating trends of energy and non-energy raw materials in recent months.

Among the most interesting findings of NBG’s analysis is that 50% of food inflation (5.4% in April) is due to olive oil. Olive oil is a Greek peculiarity, both because its prices have increased excessively compared to other countries (+63.7% in April, adding 0.5 percentage points to inflation), and because its weighting in the index is high (0.9% against 0.2% in the eurozone in 2024).

About 5 percentage points of the overall hikes in food over the past two years is due to greedflation – that is, the increase in profit margins in the retail market. Despite the reduction in the prices of several raw materials and imported production flows, the profit margins of the companies have not been adjusted in Greece, or internationally “due to the strong demand and the chronic structural constraints of the Greek market, but also of the international distribution chains of processed products and raw materials.”