Impact of capital controls led to August rise in basic food prices

Food prices in crisis-riven Greece posted the biggest monthly as well as annual increase in the European Union in August, and the main cause was not the increase in value-added tax that applied as of July 20, as as it concerned commodities such as bread, milk and meat.

One explanation for the hike is a combination of losses of companies from capital controls imposed by the government on June 28, the mandatory (since the start of the year) prepayment of imported raw materials, from packaging material to animal food – due to the lack of confidence by foreign suppliers in the Greek economy – and delays in payments by the public and the private sector. Taken together, these have lead to part of the cost being rolled on to consumers.

Eurostat data show that food prices went up in August by 2.9 percent from July and by 4.2 percent from August 2014. Interestingly, most of the price hikes were recorded in foods that were not affected by the increase of the VAT rate: The price of bread and cereal grew 3.2 percent year-on-year, the highest in the EU, and meat prices rose 1.9 percent, also the biggest in the bloc where it dropped 1.3 percent in average.

Price hikes in the main food categories do not end there: Olive oil and other forms of cooking oil saw an annual price increase of 9.9 percent, fruit soared 17.2 percent and vegetable prices grew 9.6 percent, while fish went 0.4 percent upstream and milk, eggs and cheese rose 0.3 percent.

The only price hike justified by the VAT increase is that of sugar, which rose 5 percent from August 2014 after entering the 23 percent rate bracket.

The consumer price index data for September showed that while there is a slowdown in price increases compared with August, the trend of hikes compared with January, or even June remains obvious. Hellenic Statistical Authority (ELSTAT) figures revealed a 2.96 percent quarterly hike in milk prices, although milk producer prices in the January-August period were lower on average than in the same period in 2014.

Pasta, a category that was particularly popular among consumers just after the capital controls were imposed, increased 3.27 percent in September compared with June. Notably, soft wheat prices grew in Greece – according to Eurostat data – by 4.6 percent in August from July, while dropping 5 percent in the EU, in a commodity that Greece mostly imports to cover its own needs. Durum wheat prices rose 0.8 percent in Greece in the same month.