Food inflation expected 'to stay elevated through rest of year'

Thu, 17 Mar, 2022 - 07:00

Eamon Quinn

Food inflation across the eurozone is set to stay at elevated levels through the end of the year, with the war in Ukraine only making "matters worse", according to an economics analysis.

Jack Allen-Reynolds, the senior Europe economist at Capital Economics, said the costs of making food were already on the rise before the war. However, the price of inputs such as fertilisers and the high energy costs entailed in producing processed foods meant that prices will rise further, he said.

"The war has disrupted the production and export of crops from Russia and Ukraine, ranging from wheat and corn to sunflower seeds", while energy costs had also risen, he warned.

"Note that electricity and gas prices, which are particularly high now, account for about 90% of the energy costs of the processed foods industry," Mr Alllen-Reynolds said in an analysis.

"So all of the evidence points to food inflation increasing further in the coming months."

The price of oil and gas reflected hopes for a breakthrough in the ceasefire talks between Russia and Ukraine.

Crude oil, in particular, bounced all over the place in another volatile session as traders reacted to the peace talks, with Brent crude prices having swung between $97.55 and $103.70 a barrel.

The price of European wholesale gas fell by 10% in the session.

Gas for delivery in June and July traded lower to around €101 per megawatt per hour, according to futures market.

Global stock markets rose and gold fell, also reflecting the hopes for a ceasefire.

The pan-European Stoxx 600 index ended 1% higher, while safe-haven gold fell to more than a two-week low, with sentiment buoyed by positive comments from Ukrainian and Russian officials.

Ryanair and Kerry Group shares rose by as much as 4.5%.

Meanwhile, Norway will boost its natural gas output in the coming months, keeping production higher than normal through the summer and delivering bigger volumes to Europe at a time of shortages and soaring prices, energy supplier Equinor has said.

Russia's invasion of Ukraine has driven up already high gas prices and left European nations scrambling to fill storage depleted by winter consumption and seeking alternatives to Russian supply.

By postponing some maintenance and making other adjustments together with pipeline operator Gassco, Equinor will deliver more gas, it said.

The Troll field, the North Sea's largest source of gas, can also increase output in the event that other fields face outages, thus improving overall robustness of supply, the company added.

The country exports about 95% of its gas via an extensive subsea pipeline network linking it to terminals in Germany, Britain, France, and Belgium.

A new pipe to Poland will be completed this year.

France wanted to end its imports of Russian gas and oil by 2027, Prime Minister Jean Castex told a news conference. As part of that effort, the country will boost its LNG import capacity, he said.