Expect prices for finished goods to stabilise at higher levels than those seen before the start of the Ukraine-Russia conflict.
Crops which are grown under contract, rather than sold on a free-market, prices are expected to remain elevated in the coming season (2023/24)
Declines in wholesale markets will take time to filter through to a retail level and longer for stabilisation to occur.
As the global food industry continues to deal with issues such as supply chain disruptions, high energy prices resulting from the COVID-19 pandemic, and the war in Ukraine, elevated inflation remains a key theme in commodity markets. While the cost of energy and most raw material prices have declined more recently, the prices of finished products are yet to fall by the same margin. This comprehensive analysis uses vegetable oils and grains, a staple category, to showcase why retailers have yet to be able to transfer the recent decline in raw material and energy costs to the cost on the shelf.
Specifically, food and energy costs have contributed significantly to the overall inflation trend, which continues to decrease the purchasing power of everyday consumers. The Brent crude oil price reached an average of $76.5/barrel during the first week of July 2023 compared to $112.5/barrel in March 2022, a month after the commencement of the Russia-Ukraine conflict. In the US, the Consumer Price Index (CPI) for June 2023 was +3.0% Y-o-Y, down from +4.0% Y-o-Y in May. A similar story is being told in the Eurozone, with the Harmonised Index of Consumer Prices (HICP) for June 2023 standing at +5.5% Y-o-Y, down from +6.1% Y-o-Y in May. However, core inflation (which excludes volatile energy and food prices) remains elevated in both regions and as such, central banks are continuing to increase interest rates.
