Czech food prices fall most rapidly in EU
Food prices in Czechia dropped significantly in June, in comparison with the EU, with a 4.8 percent year-on-year decrease. But producer prices published by the Czech Statistical Office suggest that the downward trend could end soon. While food could still become cheaper depending on the harvest, the reduction won't be as pronounced.
I asked Vladimír Vaňo, Chief Economist at GLOBSEC, about the decrease in food prices. He said that to explain it, the first factor we have to take into account is the incredible shock in foodstuff prices in 2022.
"The food and non-alcoholic beverages exceeded 20 percent between mid-2022 and early 2023 because of Russia’s full-scale invasion of Ukraine. So, when we talk about the annual decline of foodstuff prices, we talk about a decline from the extremely elevated prices from the beginning of 2023."
Secondly, we also have to consider the change in the Value Added Tax (VAT). Mr. Vaňo continues:
“One can look for an explanation in the VAT change in Czechia, effective from the first of January [2024] when Czechia decided to reduce VAT rates of 10 and 15 percent to a single reduced rate of 12 percent in comparison to the standard VAT of 21 percent.
“The reality is that this was bound to happen because the agricultural producer prices – the prices for which the producers had been selling their products – were in a free fall since the spring of 2023. So, basically mid-2023 agricultural producer prices were in negative territory. And at the turn of 2023 and 2024, they were declining by as much as 20 percent, so obviously as producers are selling so significantly cheaper, it was just a matter of time until this fell into the consumer prices.”
Thirdly, Mr. Vaňo argues that Czech consumers are unique in their price sensitivity even in relation to volatile products, such as food products:
“One important point that makes Czechia unique, on top of these two factors, is that studies show that Czech consumers seem to be highly price sensitive, so they restrict their purchases or substitute what they are buying. As a result, the decline in the consumer price index has been here since the beginning of 2024; in March it was even 6 percent year-on-year.”
In comparison with the rest of the EU, Dominik Rusinko, an analyst at ČSOB, said that food prices decreased in only five EU countries, with an average rise of 1.3 percent year-on-year across the EU.
READ ALSO
However, he believes the significant decline may soon come to an end. This is indicated by the figures on agricultural producer prices, which, although down 7.5 percent year-on-year in June, rose 1.9 percent month-on-month. Of these, fresh vegetables were up 13.3 percent in May, poultry up 3.5 percent, and pork up 0.3 percent. In contrast, egg prices fell by 4.5 percent.
According to Petr Dufek, Chief Economist at Creditas, the development of food prices will depend on the harvest. “If it is favourable, fears of food prices will probably prove false,” he said. However, problems could arise with fruit, which will not be in abundance this year due to the weather.
