Inflation: Lower Food Prices to “Spend the Summer in the Best Conditions”

Finally some air for consumers. Bruno Le Maire announced Friday morning an agreement with 75 major food manufacturers who undertake to lower the prices of around a hundred food products. A drop will be effective from July and could be over time, according to Philippe Waechter, director of economic research at Ostrum Asset Management.

What to expect for consumers?

Among the hundred or so products that will cost the passenger less at the checkout, Bruno Le Maire cited pasta, poultry, cereals, oils and even animal feed, namely those whose “prices on the wholesale markets go down”. The precise list will be sent to him “next week”. However, milk, beef or pork are already excluded.

However, there may be competition between the various competitors to extend the reduction to more products over time. “If a brand lowers its prices, competitors will be forced to do the same, there may be a fairly strong competitive mechanism and we can expect a big change,” says Philippe Waechter.

A drop which should also be long-term to return to prices before the Ukrainian crisis. This is for example what is happening in Germany where the price of butter has collapsed by 30% since December, as reported by the Financial Times.

Why wait until July?

Consumer price inflation slowed to 5.1% in May year on year, but that of food products reached 14.1%. Prices have been skyrocketing in supermarket baskets for many months. In question, the fact that food prices “have increased on two essential elements: cereals and everything related to fertilizers”, explains Philippe Waechter.

Since then, “prices have been reduced, we are far from the peaks of last year, but the time for deliveries to be made, for contracts to be modified, that necessarily takes time, he develops. Looking at market prices, we cannot go down immediately. This is also the explanation given by the Minister of the Economy according to which, “when wholesale prices fall, […] it sometimes takes three months, four months, five months before the price of the products concerned […] ] also decrease. Several major agrifood manufacturers have thus committed to reopening trade negotiations with supermarkets on contracts concluded for 2023, according to the minister.

In addition, “For a very long time, no manufacturer or distributor wanted to bet that prices were going to fall because there were too many uncertainties, now they are less cautious”, adds Philippe Waechter.

In what way is this agreement decisive?

Without the agreement found by Bercy, Philippe Waechter is formal: the decline would have taken much longer. With these negotiations, the Ministry of the Economy has created a “break” in “the idea of ​​safeguarding the consumer so that he can spend the summer in the best conditions”, assures the director of economic research.

And in order to ensure that manufacturers respect their commitment, the State will “verify” and “sanction those who do not play the game” via controls for the repression of fraud (DGCCRF), warned Bruno Le Maire. He also threatened to reveal the names of the distributors who would not comply with the agreement, which “encourages them to commit”, underlines Philippe Waechter. The Minister also brandished the threat of “a tax on the excessive margins of these companies”, the rate of which would be set by Parliament.

The next necessary objective to continue to help consumers will be to try to “lock the price of petrol and diesel to the price of oil,” warns the director of economic research. This a more complex question because, unlike the food industry, “distributors are very powerful and there is less competition,” he concludes.