Inflation: Food will probably become even more expensive

Not only energy, but also milk, vegetables and meat have become significantly more expensive in recent months.

In December, food prices rose by around 6 percent compared to the same month last year, according to data from the Federal Statistical Office.

They rose even more strongly than the overall price level, which rose by 5.3 percent.

Julia Loehr

Business correspondent in Berlin.

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Svea Junge

Editor in Business.

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In future too, consumers will have to be prepared for the fact that shopping in the supermarket or at the weekly market will become more expensive. This is at least the result of an analysis by DZ Bank, which was previously available to the FAZ. "No quick end to the price increases for food is to be expected," writes DZ Bank economist Claus Niegsch.

However, the growth rates should no longer be quite as high. For this year, the bank expects a price increase of around 3 percent in the food, alcohol and tobacco product category. That would be roughly in line with the general inflation expected for this year. It is important that the economists at DZ Bank prepare their forecast using the calculation method of the harmonized consumer price index, which is based on a slightly different basket of goods than the national consumer price index of the Federal Statistical Office. However, the difference is usually a few tenths of a percentage point. For 2023, DZ Bank expects food prices to rise by 2.5 percent.

The topic is politically charged. Federal Agriculture Minister Cem Özdemir (Greens) has repeatedly complained about the "junk prices" for food in recent weeks. He described the fact that the farmers only receive a small part of what consumers pay for groceries in retail outlets as a “mess”. This Tuesday, Özdemir and Federal Environment Minister Steffi Lemke (Greens) will speak at an agricultural congress in Berlin about restructuring the industry towards more sustainability and animal welfare. But while in the past the CDU-led agriculture and the SPD-led environment ministries liked to block each other, both houses now agree on the goal.

However, the question of who should pay for the change has not yet been clarified.

It is likely that animal products will be made more expensive, for example through an animal welfare levy.

A commission of experts had already proposed this to the previous government.

This in turn calls social organizations and the Left Party into action.

They demand financial support for low-income people.

Agriculture Minister Özdemir takes a similar view.

He wants to talk to the other ministries about social policy measures.

Among other things, the traffic light coalition plans to raise the minimum wage.

The standard rates of Hartz IV – which will be called “citizen’s allowance” in the future – should also be discussed.

Food prices 3.4 percent above EU average

Apparently, those who can afford it are now more likely to buy higher-quality products. Part of the current price increases can be derived from the changed purchasing behavior of consumers, says DZ Bank economist Niegsch. During the pandemic, the trend towards regionally and ecologically produced and correspondingly more expensive products increased. Compared to other EU countries, food prices in Germany were recently 3.4 percent above average.

According to Niegsch, the current increase in food prices is also due to a significant increase in producer prices. In November, farmers could charge 20.8 percent more for their produce than a year ago. That doesn't mean, however, that their incomes have increased equally. At the same time, farmers had to spend more on their operating resources, most recently an additional 13 percent. Fuel was almost 50 percent more expensive in October than a year ago, fertilizer was 27 percent more expensive and feed was 23 percent more expensive.

And that shouldn't be the end of the story: "The costs for agriculture will continue to rise, not least because of rising CO2 prices and an increase in animal welfare," Niegsch expects. The agricultural businesses are under high cost pressure, which is why they are trying to pass the increased costs on to their customers in the future.

Apart from the recent increase, agricultural producer prices have increased at a much lower rate in recent years than consumer food prices, which have always been slightly above general inflation. The DZ Bank economist does the math: Farmers were recently able to charge a good 30 percent more for their products than 30 years ago. However, consumer prices for food rose by more than 65 percent during this period. "At most, part of this difference can be explained by productivity advances in agriculture," says Niegsch. He therefore sees a “considerable amount of catching up to do” in terms of agricultural producer prices.

The number of farms in Germany has fallen from around 630,000 in 1990 to around 263,500 in 2020.

In an earlier analysis, DZ Bank had forecast a drop to 100,000 farms by 2040.

In pig farming, however, a reduction is also politically desirable.

Because important buyer countries such as China are forcing production in their own country, there is overcapacity in Europe, which is leading to low prices.

The Netherlands had therefore already offered a closure premium for pigsties.