Eastern Europeans are counting their pennies for Christmas as food costs soar, a Reuters analysis shows. The sudden rise in prices started to curb consumption.
Eastern Europeans are scrambling to put their favorite meat dishes on the table this Christmas as food price inflation, particularly in Hungary and the Baltic countries, is higher than in the European Union.
According to Eurostat data, food prices in Hungary were 45.2% higher in October than a year earlier, and 10 eastern EU countries are experiencing food price inflation of more than 20%. The cost of food was 33.3% higher in Lithuania and 30% higher in Latvia compared to October 2021.
Global inflation could peak
While there are signs that global inflation may be peaking in some countries, food prices continue to rise strongly, which is helping to reduce the cost of living and forcing central banks to keep interest rates high even as economies start to slow down sharply, according to a Reuters analysis.
Experts say local factors are exacerbating a global trend driven by rising energy and fertilizer costs, including low food industry productivity in some ex-communist countries, heavy exposure to imports and rising wages in labor markets.
In Hungary, a severe drought has decimated this year’s corn and wheat harvests and sent feed prices soaring, while the weak forint pushed up import costs.
“In 2023 we will face serious difficulties”
On their farm in Tiszaeszlar, in eastern Hungary, Lajos Kander’s family raises more than 2,000 “Mangalica” pigs, a traditional breed prized for their meat.
The Kander family usually grows corn and wheat and produces their own feed. But the drought has forced it to buy some feed from the market, where Kander said corn and winter wheat prices have nearly doubled from 2021.
“In 2023 we will face serious difficulties because we will have to buy feed, we will see at what price we can make up the shortfall,” he said, adding that energy costs, wages and veterinary costs have also increased.
The farm pays HUF 29 per KWh for electricity under a contract that expires on December 31, after which the bill will rise to HUF 138 per KWh. Fortunately, they have some solar panels. Meanwhile, the annual cost of vaccinating pigs tripled to 4.5 million forints.
Food, the main driver of inflation in Hungary
The Kander family raised prices by around 20-25%, but Lajos Kander said further cost increases would be difficult to bear: “Businesses will have to absorb some of these costs … to be able to overcome this situation. Maybe we will want to get 2,000 forints for a kilogram of pork, (but) no one will buy it.”
Food is currently the main driver of inflation in Hungary, with data on Thursday expected to show an acceleration to 22.2% in November, and the removal of fuel price caps expected to provide further impetus going forward.
Headline inflation in the Czech Republic slowed to 15.1% in October, but food prices rose, while in Poland food and non-alcoholic beverages inflation was 22.3% in November, well above the headline CPI of 17 ,4%.
In Lithuania, one of the Baltic states whose small, open economies are exposed to fluctuations in international commodity markets, central bank governor Gediminas Simkus struck an upbeat note.
“Next time, we will see monthly inflation come down a bit because the peaks in energy and food prices have already happened and hopefully won’t happen again,” he said last week.
Meanwhile, the sharp rise in prices began to curb consumption.
Food sales fell by 5.6% in Hungary
Food sales fell 5.6 percent in Hungary in October as families facing year-on-year increases of more than 34 percent for meat and fish and 80 percent for bread cut back. Meanwhile, Czech shoppers faced a 105% increase in sugar prices, while in Poland flour cost 45.4% more.
A survey by Barometr Providenta showed that Poles will spend an average of 1,259 zlotys ($281) on Christmas this year, 307 zlotys more than a year ago, even though almost half of those surveyed said that they will buy cheaper products to keep costs down.
Inflation in Hungary is expected to begin a very slow decline in the first half of next year.
“There are still no lasting signs that inflation dynamics are improving in Hungary,” Goldman Sachs said.