Retreat energy prices can help de-escalate inflationbut continues to increase food a European phenomenon. In many European countries, food inflation ranges from 16% to 29%, while in Greece it is 14.7%. Household incomes are shrinking and the backlash is prompting governments to take various measures such as VAT cuts, price caps and strict controls. The Greek government has adopted a market pass measure coupled with increases in base wages and pensions, while rejecting VAT cuts as they are considered very costly to the budget and have particularly limited effectiveness.

Europe tries to put out the fire of food prices

bloomberg

Tax incentives, marginal prices, strict control. Europe’s fight against the worst pandemic of punctuality it has seen in nearly 40 years continues, with its main goal being to accelerate food price inflation. Even as inflation slows, upward pressure on food prices is mounting. This means that a significant part of the needs of the household is becoming more and more expensive.

Inevitably, governments are rushing to take action as many families struggle to cope as social unrest and strikes erupt across Europe and workers demand higher wages. Rabobank Group economist Marte Wiefelaars notes that in parts of the Eurozone, food prices are rising at an unprecedented pace in post-war history. In March, headline inflation in the euro area was 6.9%, with some countries experiencing a significant slowdown. In France, for example, it was 6.6%, while food price inflation was about 16%. Something similar is happening in Germany, where food price inflation is 20%. Therefore, most European governments are taking action to stop the breakneck price increase by resorting to policies adopted in poor countries.

Portugal, where food prices are rising more than 20% compared to last year, has decided to temporarily zero VAT on a basket of essential foods. This measure is the last to be adopted after countries such as Poland and Spain. In Spain, where food price inflation is as high as 16.6%, the same measure applies to staples such as bread and olive oil. So far, however, it has proved ineffective, as it has not stopped the incessant rise in prices, which is increasing pressure on Prime Minister Pedro Sanchez, while the country is in the pre-election period. Coalition partner Podemos called for a cap on food prices and a 14% discount on 20 staples. Poland plans to maintain a zero food tax, possibly until the end of the year. And the Italian government is considering imposing taxes on staples such as pasta, bread and milk.

Prices are rising at an unprecedented pace in post-war history, for some goods by 15-20%.

As for setting the ceiling product prices, is an aggressive intervention that many governments are reluctant to use. There is always the risk of a boomerang, as happened in Hungary. Hungary introduced a price ceiling early last year, but food price inflation has accelerated to almost 50%. In practice, this measure forced retailers to sell certain goods at a loss, and to cover the losses, raise the price of other goods. Hungarians also remembered the country’s communist past, when merchants rationed staple foods like potatoes and created artificial shortages in the market.

However, as consumers struggle to cope and many businesses show impressive profitability, there is a sort of social outcry against inflation that only affects consumers. As a result, many countries have tightened control. In Portugal, surprise inspections of supermarket chains were carried out and prices were examined. In Spain, the government has organized monthly meetings with representatives of shops, transport companies and food industry owners to make sure that tax breaks lead to lower prices. “No one thought this would happen in a place like Europe, but when food prices rise by 15-20% for some commodities, governments are under increasing pressure,” comments Angel Talavera, Head of the European Economics Sector at Oxford Economics .

VAT cut is ineffective, government says

Irini Chrysoloras

The economic apparatus of the government is categorically against reducing the VAT on food, as it believes that “the measure is very expensive for the budget, with very low efficiency,” according to the deputy finance minister. Theodor Skylakakis.

The arithmetic of the General State Audit Office (GLA), according to its sources, says the following: if the VAT rate on food is reduced from 13% to 6%, as SYRIZA proposed with an amendment last December, fiscal costs will increase. is 1.5 billion euros. However, GLK calculated that out of the 7 percentage points discount, only 20%, or 1-1.5 percentage points, would be passed on as a benefit to the consumer. They believe that the entrepreneur will reap the rest. Thus, out of 1.5 billion euros of costs for the budget, the consumer will receive a benefit of 300 million euros per year, which corresponds to 1 euro per household per month, according to competent sources of financial personnel.

Sources from the economic headquarters cite as an example the reduction in the VAT rate on coffee and drinks in the catering sector, which not only did not lead to a decrease in their cost, but, on the contrary, to its increase.

With the dominance of small and medium-sized enterprises in the Greek economy, control over the transfer of the reduced rate to the final price is extremely difficult, according to the Ministry of Finance. Also in Spain, where the corresponding measure was introduced, food inflation reached 16.6% in February.

In addition, financial officials argue that any benefit from VAT reduction will eventually go to the consumer, will be horizontal, to all socio-economic categories. In fact, those who consume more will benefit more. Conversely, the most vulnerable, who need it the most, will benefit the least.

Also, they note, part of the benefit will be transferred to tourists, whose spending is largely directed to the food market.

“Once businessmen, the upper class and tourists benefit, there is little left for the weakest,” comments Mr Skylakakis.

With this rationale, he argues that “market pass measures, as well as increases in the minimum wage and pensions, are far more effective in benefiting the most needy households.”

In addition, the discussion is theoretical, the Ministry of Finance notes, since there is simply no fiscal space to carry out such a reduction worth 1.5 billion euros. If the government decided to take such a measure this year, it would most likely sacrifice earnings for the primary surplus, and with it, possibly investment grade. From 2024, after all, it will still have to be canceled, as restrictive fiscal measures are returning.

The Finance Ministry believes that the preferred measure, if fiscal space is found, is further cuts in employee insurance premiums, which Prime Minister Kyriakos Mitsotakis has already announced for the next four years.

Seven out of ten companies are planning a revaluation in 2023

Dimitra Manifava

Households in Greece will continue to face the problem of food accuracy in the coming months as several companies raised prices at the beginning of the year and some others plan to raise prices in the next period. Although the frequency of price list changes by suppliers is no longer as high as in 2022. It is reported by “Kathimerini”. senior executive of a large supermarket chain, price increases are still taking place, but the industry does not send out price lists with price cuts. The phenomenon of declining prices for some products recorded at the end of January, a decrease of 5%-18% and mainly related to imported dairy products and corn oil, did not have a similar continuity and turned out to be rather limited in scope. After all, a few days ago, a NielsenIQ survey of supplier and retailer executives found that seven out of ten companies are planning price increases in 2023.

Some suppliers have not raised their prices significantly in 2022 to maintain market share, but are doing so now as pressure on production costs persists. As they note, energy costs may show signs of decline, but this is not the case for transportation costs, which are expected to increase even more in the coming period, as well as the cost of virgin and recycled materials.

It is recalled that from April 2022, food inflation in Greece is expressed in double digits, and from October 2022 it goes to the level of 15%. It even remains at these high levels, despite the fact that the overall consumer price index has recorded a significant slowdown since the fall.

What’s worse is that at the top of the price spikes are the most basic food items such as dairy, bread, meat and butter. According to the latest data from the Hellenic Statistical Office (ELSTAT), prices of dairy products rose by 25.2%, oils by 22.9%, meat by 20%, bread by 16.8%, coffee by 13%, sugar by 9.2%. %. , water-juices-soft drinks by 9%, vegetables by 8.6%. To understand the issue, especially in the dairy sector, it is enough to say that the average producer price for cow’s milk, according to ELGO – DIMITRA, is 0.574 euro/kg from 0.438 euro/kg in January 2022, while in the past year, the average price reached 0.588 EUR/kg. The average producer price for sheep’s milk, used mainly for the production of cheese and yogurt, is 1.56 euros/kg from 1.17 euros/kg a year ago and shows no signs of decreasing.

The large rise in food prices has resulted in a decrease in sales that is proportionately small to the increase in prices. The reason is that many consumers have turned to private label products, which also recorded a significant price increase of 16.6% in 2022. As a reminder, supermarket sales fell by 1.5% in 2022 (data from NielsenIQ), while in the first quarter of 2023, sales are estimated to fall by about 4%.