Monthly Bulletin April 2008 - European Central Bank - Europa

ECONOMIC
AND MONETARY
DEVELOPMENTS
Prices and
costs
in oil prices in dollars in February, from the
already very high levels reached at the beginning
of the year, was only partly absorbed by the
appreciation of the exchange rate of the euro.
Besides energy price developments, a
further sharp increase in food prices strongly
contributed to overall HICP inflation in
February. With a joint weight of 19.6% in the
HICP basket, both processed and unprocessed
food price developments contributed on
average around 0.8 percentage point to annual
HICP inflation between September 2007 and
February 2008.
Chart 19 Breakdown of HICP inflation: main
components
(annual percentage changes; monthly data)
4
3
2
1
0
total HICP (left-hand scale)
unprocessed food (right-hand scale)
energy (right-hand scale)
16
12
8
4
0
The rise in food price inflation in the euro
area largely reflects the sharp increase since
mid-2007 in the prices of nearly all major
agricultural commodities on global markets,
owing to a combination of factors. On the
demand side, three major structural causes of
upward pressure on international food prices can
be identified. First, changes in food consumption
patterns in many emerging market economies,
induced by strong income growth, has resulted
in a steep rise in global demand for foodstuffs.
Second, and somewhat more recently, the
production of biofuels has increased global
demand for certain agricultural crops (e.g.
maize) and also affected the supply and demand
conditions for a number of substitute crops (e.g.
wheat and soybeans). Finally, high energy prices
have contributed to raising the cost of energyintensive
inputs for agriculture, such as fertilisers and fuel for transport and machinery. At the same
time, several shocks have affected the global supply of agricultural commodities, including wheat
crop disruptions due to adverse weather conditions in some major agricultural commodity-exporting
countries. Protectionist measures and market speculation are also reported to have influenced global
food prices, although to an extent which is difficult to quantify.
As regards the transmission of the global food commodity price shock to the consumer level
in the euro area, 1 the annual growth rate of processed food prices reached a new high of 6.5% in
February, pushed up by a simultaneous rise in all sub-components (particularly in dairy, cereals and
oil products). In month-on-month terms, however, the rate of growth in processed food prices has
moderated somewhat over the recent months. In the absence of a further shock in global food prices,
this moderation should also become visible in terms of annual growth rates in the coming months. By
-1
8
6
4
2
0
-2
2004 2005 2006
2007
total HICP excluding energy and unprocessed food
processed food
non-energy industrial goods
services
2004 2005 2006
Source: Eurostat.
2007
-4
8
6
4
2
0
-2
1 The extent to which the global food price shock is transmitted to the consumer level varies significantly across countries. This reflects the
fact that the euro area retail food market is segmented along national lines, due to differences in local preferences, production structures
and regulations, as well as in competitive conditions in the retail and distribution sectors.
ECB
Monthly Bulletin
April 2008
33