Food around the world is already becoming cheaper, but Czech sellers often cut their prices even further instead. Czechs should be careful when shopping in the store and not buy food at any price, says economist Lukáš Kovanda.
Global food prices appear to be falling this month for the first time in more than two years. The threat of a global food crisis is most likely averted. However, this message apparently did not reach many Czech retailers, including chains, even after several months, according to the October data of the CZSO.
Globally, food prices rose by only 1.99 percent year-on-year in October, according to the regular monthly statistics of the United Nations. This is the mildest year-on-year increase in food prices for the entire period since August 2020.
Global food prices fell for the seventh month in a row. Only grain became more expensive again
World food prices decreased slightly in October compared to September, showing a decrease for the seventh month in a row. They are thus already lower by almost 15 percent since the March ascent to the record, but in a year-on-year comparison they still show a two percent increase. This was stated by the United Nations Food and Agriculture Organization (FAO) in its report.
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At the same time, from January 2021 to July of this year, food prices in the world increased year-on-year consistently, month after month, at a double-digit rate. The slowdown in growth to a level of less than two percent is therefore a fundamental change from the previous trend. And if the current trend continues, it is very likely that this month we will even see a drop in world food prices. November figures will be published in December.
Of course, in terms of long-term development, food prices in the world are still relatively high. After all, in October they were almost 36 percent above the average of the years 2014 to 2016. However, in May of this year they were almost 60 percent above this average.
The best cure for inflation? Inflation
Even so, it is already possible to say that due to the described development, it is difficult to expect wider storms and protests due to expensive food, such as we remember from 2007 and 2008. At that time, really expensive food shook a number of countries, as people rioted en masse in more than fifty countries of the world, from Haiti to Bangladesh. This year, with the exception of Sri Lanka, there are practically no storms due to the high cost of food. And Sri Lanka’s problems are wider than just securing food supplies.
Measures against expensive energy have suppressed inflation, it is still one of the highest
Inflation in the Czech Republic rose by 15.1 percent year-on-year in October, which was 2.9 percentage points less than in September. The slowdown was mainly influenced by housing prices, where electricity prices fell by 38.2 percent. Conversely, in the food and non-alcoholic beverages section, year-on-year price growth accelerated again, the Czech Statistical Office reported.
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The key difference now from the late 2000s is that the price of rice remains relatively stable. The protests at that time were not so much because of expensive bread as because of expensive rice. Between 2007 and 2008, rice prices skyrocketed to over $1,000 per ton. So far this year, rice has averaged $414 per ton, which is below the five- and ten-year average. This is due to several consecutive years of solid rice harvests and high global rice stocks, which create a buffer against inflation.
However, the main reason for the current drop in food prices is inflation itself. As is well known, the worst antidote to inflation is inflation itself. On the demand side, higher prices lead to a reduction in purchases, while on the supply side they motivate an increase in production. Both create pressure to moderate price growth, and even to lower prices. We are watching this live right now. Of course, it also helps that in the summer the UN and Turkey managed to negotiate an agreement between Ukraine and Russia to ensure a safe Black Sea corridor for the export of Ukrainian grain and other crops. This agreement should now be extended, which would further reduce the prices of agricultural produce.
Czechs still have to wait for cheaper food
Compared to 2007 or 2008, it also helps that, with minor exceptions, individual states have not yet resorted to agricultural and food protectionism this year. Restrictions on the export of agricultural crops were fourteen years ago, or fifteen years ago, a factor that greatly contributed to food shortages in many parts of the world. Since then, the world has obviously learned its lesson, so we can talk about another of the triumphs of free trade.
Butter for 65 crowns. The price of most basic foods has risen again
A quarter of butter for 65 crowns, a kilo of bread for 37.50, eggs for 41.30 crowns. The average prices of most basic foodstuffs rose to their maximums again in the past week, according to the current data of the Czech Statistical Office. Milk, edam and roast pork, on the other hand, saw a slight decrease, but they are still high. The reason is persistent inflation affecting prices ranging from energy to packaging and fertilizers.
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Despite the easing of inflation, even despite the lowering of food prices in the world, consumers in the Czech Republic still have to wait for a corresponding reduction in food prices. Grocers and food sellers, including chains, have yet to fully reflect the increase in the prices of energy and other inputs into their final prices. Some of them will also try to further increase their margins and therefore rely on the fact that the Czech public will notice the global drop in food prices only with a delay, if at all.
This is clearly evident from the development of beef prices in the Czech Republic. The price of a kilogram of boneless back beef in the Czech Republic has already stopped rising in June this year. At that time, according to the CZSO, its price stopped at the level of 199 crowns. From January to June, the price went up by almost twenty crowns. Since the mentioned June, it has become cheaper from 199 to 192.80 crowns in October. But this decrease only concerned production prices. That is, the prices charged by the meat processors themselves. If we focus on what prices the customer pays in the store, there is no drop in prices, on the contrary. In October, a kilogram of boneless back beef was sold in stores nationwide for an average of around 286.20 kroner, i.e. the highest average monthly price this year. In January of this year, it was more than 60 crowns less, namely for 226.10 crowns. So while in January this year the price in stores was about 28 percent higher than the production price charged by meat processors, now in October the price in stores was already about 49 percent higher.
Czechs save. They heat and light less, but they haven’t given up alcohol
Two-thirds of Czechs said at the beginning of the heating season that they would save on energy, use less heating and light. Other reactions to rising inflation include a significant reduction in restaurant visits. However, the popularity of alcohol is not decreasing, according to a survey for the Edenred company.
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A similar development can also be traced to, for example, milk, butter or eggs.
So people should be careful when shopping in stores and do not buy food at any price. The time of global food prices, which sellers still refer to, has actually already passed.
David Havrlant from J&T: The end of globalization. Who will be the new winner and loser?
The process of deglobalization began even before the onset of covid, but the global pandemic has nevertheless significantly accelerated it. Now this evolution is tipping over into a fragmentation phase that will bring new challenges and opportunities, thus new winners and losers. Gone are the days when the unifying link was the promotion of global prosperity. The time of ideologies to which it is possible to sacrifice economic well-being is coming to the fore. The current global wave of inflation is a symptom of deeper changes and rate hikes in the US are just one of the factors in the overall tension on the financial markets, says J&T Bank economist David Havrlant.
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