Bread in Britain. Pasta in Italy. Cheese in Germany. Throughout Europe, the cost of food and drink is rising at the quickest rate in decades, squeezing low-income households and troubling European politicians, even as the major costs that go into making food products have been falling in international markets for much of the past year.
Those high costs in Europe are in part related to energy prices, after the war in Ukraine prompted a switch from Russian gas to new supplies, pushing up the costs of food production, transportation and storage. Wholesale energy prices have come back down recently, but consumers in Europe will not see the benefits of that for some time.
Tight labor markets in Europe, with high job vacancy rates and low levels of unemployment, are also causing employers, including food companies, to push up wages to attract workers. That in turn drives up costs for businesses, including those in the food sector. Economists are divided on whether profiteering is also contributing to high prices.
What’s next: Despite well-publicized cuts to milk prices in Britain and the threat of government intervention, food prices in general are unlikely to go down in the near future. Instead, policymakers are closely watching for a slowdown in the rate of increases.
In the U.S.: Even as the prices of oil, transportation, food ingredients and other raw materials have fallen, some of the world’s biggest companies have said they will continue increasing prices or keep them at elevated levels for the foreseeable future. The strategy could keep inflation robust, contributing to the very pressures used to justify surging prices
