When Groceries Bite: The Role Of Food Prices For Inflation In The Euro Area

• While overall inflation has normalised and currently lies at the ECB's 2 percent medium-term target, food inflation is higher. To put a meal on the table, consumers pay roughly a third more than before the pandemic. This ECB Blog looks at the causes and consequences for monetary policy.

By Elena Bobeica, Gerrit Koester and Christiane Nickel

Inflation has come down a lot in the euro area – from a peak of 10.6 percent in October 2022 to 2.0 percent recently. At the same time, wages have increased, compensating for a good part of earlier losses in real income. By and large, we are in a better place. But for many households, it does not feel like that. When people go to a supermarket, quite some of them feel poorer than before the inflation surge that followed the pandemic. One in three of them worry about being able to afford the food they would like to buy. And this is more than just a feeling: food prices remain stubbornly high – one-third higher than before the pandemic.

Everyone has to eat. However, food prices matter even more for lower-income households, for whom putting a meal on the table every day consumes a larger share of their income. This blog discusses what is going on and why food price developments are an important challenge for the ECB in its pursuit of price stability.

Putting food price inflation in perspective

The ECB's price stability objective is defined in terms of the HICP headline price index. The index shows how much an average household with a typical consumption basket pays for bread, butter, transportation, holidays and a range of other products and services. All of these can be broken down into four overarching categories: energy, services, consumer goods and food. The weight given to food in the euro area is around 20 percent – more than twice the weight given to energy. We measure inflation by comparing the change in price levels at a point in time compared to 12 months before.

While food price inflation in the euro area started to increase a bit later than overall headline inflation after the pandemic (Chart 1, panel a), it reached much higher levels surpassing 15 percent at its peak and took longer to normalise. The latest data, from August 2025, show that food price inflation is currently the highest across the four HICP categories, standing at 3.2 percent.

Usually, central banks like the ECB focus on overall price changes. Most of the time, less attention is paid to the individual components – energy, services, consumer goods and food.

There are three reasons why food prices are currently of particular interest. First, the gap that has opened up between food and overall prices is much larger and more persistent than in the past. Second, food prices affect everyone all the time and therefore also shape inflation expectations. Third, food price increases hit poorer households harder than others.

Since the introduction of the euro in 1999, food prices have tended to increase slightly more than other prices, as reflected by the upward-sloping yellow trend line in Chart 1 (panel b). However, the gap that has built up since 2022 is clearly exceptional and persistent.

Let's take a closer look at the supermarket aisles. Food price developments have been quite heterogeneous across product categories and across countries. Meat prices for beef, poultry and pork, for example, are now more than 30 percent higher than at the end of 2019. Meanwhile, milk prices have risen by around 40 percent and butter by around 50 percent compared to pre-pandemic levels (Chart 2). Prices for coffee, olive oil, cocoa and chocolate have increased even more.

Across euro area countries, the increase in food price levels since the end of 2019 ranges from 20 percent in Cyprus to 57 percent in Estonia (Chart 3). Russia's unjustified war against Ukraine caused a sharp rise in the cost of energy (gas in particular) and fertilisers. This drove up food prices in the euro area as a whole over 2021-23, especially in the Baltic States. More recently, increases in labour costs and in global food commodity prices partially linked to climate change have played an important role in pushing up food inflation once again.

There are several factors at play in the uneven rates of food inflation across countries, including different exposures to commodity price shocks, different labour cost dynamics and different energy costs. Not surprisingly, food – together with energy – has also been a major factor in the large cross-country dispersion in inflation rates in the post-pandemic period.

Beyond short-term cost pressures, food price inflation is also shaped by longer-term structural forces. These include both global and domestic factors. On the global side, rising incomes, particularly in emerging markets, have increased demand for agricultural commodities, placing upward pressure on food prices worldwide. Domestically, productivity growth in agriculture tends to lag other sectors. Climate change is emerging as another key driver: extreme weather events, such as droughts and floods, are becoming more frequent and can severely disrupt food supply chains. For example, prolonged droughts in southern Spain in 2022 and 2023 led to sharp increases in olive oil prices, and coffee and cocoa prices surged following adverse weather in key exporting countries such as Ghana and Côte d'Ivoire.

Looking ahead, the impact of structural trends like climate change will most likely intensify. These developments highlight the growing difficulty in distinguishing between cyclical and structural drivers of food inflation, as is the case for other categories, which was an important theme of the ECB's 2025 monetary policy strategy assessment.

Why food prices matter for the ECB

So why are prices of bread, butter and chocolate relevant for monetary policy?

First, unlike many other goods, the consumption of food is a necessity and accounts for a large share of the HICP consumption basket. Research and insights from the ECB's Consumer Expectations Survey suggest that households pay particular attention to food price changes. Many consumers buy food daily, and thus notice even small price changes quickly. In contrast, less frequent or less salient items, such as durable goods or rents for housing under long-term contracts, tend to influence perceived inflation less. As a result, food prices matter disproportionately for inflation perceptions and expectations, which are crucial for ensuring price stability in the euro area. Recently, given the high prices consumers face at the supermarket counter, this effect has increased.

Second, low-income households have to spend a higher proportion of their income on essential goods such as food, energy and housing. And whenever prices of essential goods rise, poorer households are affected disproportionally. Consequently, they experience higher effective inflation rates than their wealthier neighbours implying that they need to cut more on other expenses to balance their budgets. As lower-income households depend strongly on wages, high effective inflation rates for these households can also fuel wage demands that push inflation up further via so-called second-round effects.

Third, trends in relative prices offer insights into how persistent a shock might be and help in understanding the influence of long-term forces on inflation – as also discussed in the analyses underlying the ECB's 2025 monetary policy strategy assessment.

Taken together, these factors underscore the importance of closely tracking food price developments, making them particularly relevant in the ECB's current analyses.

The views expressed in each blog entry are those of the author(s) and do not necessarily represent the views of the European Central Bank and the Eurosystem.

The post When groceries bite: The role of food prices for inflation in the Euro area appeared first on Caribbean News Global .

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