Research institute predicts that upward pressure on food prices will lessen in 2009

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In January, food prices rose in Finland more than in any other European Union member-state.
      According to a forecast made by the Pellervo Economic Research Institute PTT, food prices will increase by some seven per cent over the current year.
      The increase in food prices will raise the annual inflation to 3.5%, but in 2009 the inflation rate is predicted to drop to 2.4% cent.
      Incidentally, PTT has had to correct their initial price forecasts. Still last autumn it was predicting that the prices of foodstuffs would go up just by 3.5 per cent this year.
      PTT also estimates that the prices in food markets will calm down next year, as for example the decreasing of the rate of value added tax applicable on foodstuffs in the autumn of 2009 will reduce the upward pressure on food prices.
     
In January, food prices rose by an average of five per cent from December. The largest increases of some 10% were seen in the prices of milk products, cheeses, eggs, fruit, oil, and fats, while the price of grain rose by about 7% and that of fish and meat by some 6% each.
      Elsewhere in Europe the prices of food have increased earlier.
      In Finland peaks happen in food prices three times a year, as the food industry conducts price negotiations with retailers every four months, with the first agreement being made in early January and the next around first of May.
     
The most important food grain is wheat, which is used for bread. The average global price of wheat has doubled from last year, while the Finnish producer price for wheat was in February 70 per cent higher than last year.
      The price for barley rose by 40 per cent last year, while the prices for rye and oatmeal grew by some 30 per cent.
      Moreover, the prices of feeding grain have soared as well, while the consumption of such grain has increased further as a consequence of the increasing consumption of milk and meat particularly in Asia, where the standard of living has risen.
      On the other hand, the low grain harvests in recent years have decreased the amounts of grain in storage to record lows.
     
As grain constitutes the beginning of the food chain, the rising grain prices are bound to increase the prices of other products as well.
      Finland’s largest milk processor Valio has announced that it will increase the producer price for milk by five cents per litre in the spring. This is the third successive increase within 12 months, as last autumn the producers received an additional three cents per litre, and at the turn of the year another five cents.
      The reason for these increases is that the production of milk has substantially decreased in Finland in recent years. Last year the amount of milk Valio received was 41 million litres lower than previously.
      The same trend can be seen in other European dairies, while for example the prices of milk powder are skyrocketing.
     
As a result of the rising prices of feeding grain, the prices of meat are also expected to rise substantially.
      PTT predicts that the price of beef will also rise by 10 per cent. Even the price of poultry, the most favoured meat in Finland, is likely to increase more than ever before.
     
According to PTT, the economic growth of Finland will slow down to some 2.9 per cent this year, while in 2009 it will fall further to 2.5 per cent.


Links:
  Pellervo Economic Research Institute PTT

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