Inflation is falling, growth is hesitant Economic Outlook - June 2023
Focus - Consumer prices of food products could slow considerably by the end of 2023
The continuous increase in food inflation since the end of 2021, and the unprecedented levels reached in recent months represent a challenge for the economic forecaster, both in understanding its determinants and predicting its evolution. In fact, prices of agricultural and energy commodities have risen sharply for more than a year, but some prices have also slipped back markedly since last summer. To analyse how these movements are ultimately reflected in consumer prices, it is important to look first at how they are passed on to agricultural producer prices then to agrifood industry producer prices and, lastly, to distributors’ selling prices (consumer price). This Focus models the different stages of this chain of transmission, analysing price-fixing behaviours during the current period and inferring forecasts for the future.
The first link in the chain, agricultural producer prices (excluding fruit and vegetables) rose by 23% in 2022, compared to 2021. The increase was 16% for producer prices in the agrifood industries and 7% for consumer prices of food products (excluding fresh produce). According to the model used in this Focus, the increase in the price of inputs outside the sector –world prices of agricultural commodities, energy, etc.– would appear to account for a significant proportion of these price dynamics during 2022: almost 90% of the momentum in agricultural producer prices, about 70% for agrifood industry producer prices and about half for consumer prices of food products. Wage costs would seem to have been the second most important factor behind these price increases in 2022, contributing notably a little over one third to the rise in consumer prices of non-fresh food products. Margin behaviour may also have been at work in 2022: significant increase in unit margins mainly in the agrifood industries, after margin squeezing in 2021, whereas the dynamics of consumer prices could, on the contrary, reflect a squeezing of the unit margins of distributors from the end of 2021 until the end of 2022. This analysis of margin behaviours obviously remains surrounded by uncertainty inherent in the model being used.
The model selected for this Focus study also highlights the delayed effects on production and consumer prices of movements in commodity prices. Our simulation suggests that increases in agricultural commodity prices are passed on to consumer prices at a rate of about 50% after three quarters, and 80% after one year. Thus, in the forecast for the months to come, the decline in agricultural and energy commodity prices since summer 2022 should exert downward pressure on agricultural producer prices then on agrifood industry producer prices. The latter could then fall back in turn, with a “normalisation” of margin behaviour which could even accentuate the downward trend. This decline would lead to a slowdown in consumer prices of food products (excluding fresh) from Q2 2023, sustained nevertheless by the buoyancy of wage costs and by probable anticipatory margin reconstitution behaviour by distributors. However, these anticipatory movements, resulting from an econometric model, are still dependent on various factors, including the rounds of negotiations between producers, processors and distributors...
Conjoncture in France
Paru le :26/06/2023