Research: In the Last Year, Croatian Households Lost 3.3% of Purchasing Power

Food prices in Europe remain high and are expected to drop only at the end of the year, concludes a new study on food price inflation conducted by Allianz. In March, the overall inflation rate in the Eurozone fell to 6.9% (down from 8.5% in February) due to a significant drop in energy inflation to 0.9% (down from 13.7% in February), exactly one year after the spike in oil and gas prices due to Russia’s attack on Ukraine. However, inflation of food, alcohol, and tobacco prices rose to 15.4% and is likely to remain high until the end of the year.

The drop in raw material prices has not helped alleviate the pressure on food prices in Europe. As of April 2023, most food products are trading at levels close to or slightly above those from 2021.

The Burden of Rising Prices Remains on Consumers

According to the study, prices have been raised primarily by packaged food manufacturers, not retailers. Covering over 70% of all food consumption in Europe, food retail is largely responsible for the recent price increases. The increase in food prices accelerated in the second half of 2021 after the rise in agricultural prices, before the Russian invasion of Ukraine, which significantly accelerated the growth.

In 2022, food manufacturers raised prices by as much as 17%, while retail food producers increased prices by only 12%. An analysis of the financial data of food retailers shows that costs have risen faster than sales, with gross margins in 2022 decreasing and falling below pre-pandemic levels.

Purchasing Power in Croatian Households Has Fallen by 3.3%

Allianz estimates that households have already lost between 1.1% and 9.2% of purchasing power in the last year, especially in countries that heavily rely on food imports (particularly in Eastern Europe). The data for Croatia indicates that purchasing power in households has fallen by 3.3%, while the difference between the highest and lowest income quintiles was -4.8%.

Although not all households are under pressure, those in the bottom 20% of the income distribution are the hardest hit as they spend a larger portion of their disposable income on essential living costs.

According to a study by the European Institute of Innovation and Technology (EIT) involving 5,000 respondents in ten countries, consumers have started to save on essential expenses where possible, buying cheaper brand products or shopping in cheaper stores. More than one-third of participants stated that due to saving, they are buying less red meat, fish, and poultry. However, merely changing behavior may not be enough. When consumers spend more on food, it means they spend less on other needs, which slows down economic recovery. It is predicted that a 20% increase in food prices could lead to a consumption drop of nearly one percentage point.