Consumer prices: No all-clear in the supermarket

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In the past few weeks, many consumers have looked at the price tags on groceries with relief: they are no longer getting more expensive, sometimes the prices are even falling. But the inflation isn't over yet.

Various groceries are in a shopping cart in a supermarket

In international comparison, Germans spend little money on food. The price increases since Russia's attack on the Ukraine and the resulting economic upheaval have not fundamentally changed this.

This is particularly noticeable to those who have to leave a relatively large part of their income at the supermarket checkout. But even those who don't look at the penny often had to swallow: a 400 gram tub of Irish butter cost 4.99 euros for months.

For a few weeks now, the same product has only cost 4.29 euros. There is also German butter in the refrigerated section – as the discounter's own brand – and sometimes costs just 1.59 euros for 250 grams. There is a similar development with cheese and pasta.

There is a clear easing in the butter business: Prices are falling here

Patience and trust required

The German Institute for Economic Research (DIW) even sees a trend reversal in inflation in Germany: “We have probably reached the peak of inflation. The trend reversal has begun,” said Kerstin Bernoth from the DIW, the editorial network Germany (RND) confidently.

But don't expect prices to fall everywhere now, she added: “It just means that prices won't go up any further. We have to get used to current prices.” You have to be patient now and “trust that prices will settle down again in the long term”.

“Prices tend to continue to rise”

Kai Hudetz, the managing director of the Institute for Trade Research in Cologne (IFH), sounds less euphoric. He gives the reasons for the price increases that are not over yet: “The skyrocketing energy, logistics and raw material costs have triggered a chain reaction,” he told DW. “All companies along the value chain had and are struggling with rising costs. However, many additional costs have already been passed on to consumers, which is why the inflation rates are currently lower and at least selective price reductions are possible.”

Therefore one could not yet announce an “end of inflation”, because “the prices of more product categories are still rising than falling. Some manufacturers have announced price increases, which retailers have to pass on in view of the low margins. The comparatively high wage agreements also flow into prices that tend to continue to rise a.”    

dr Kai Hudetz from the IFH in Cologne admits: “At least selective price reductions are possible.” ;         

The power of discounters

One reason for the low price level for groceries in Germany in an international comparison is the market power of the discounters. Only four large companies – Rewe, Edeka, Aldi and Lidl – share the largest market shares and are in fierce competition with each other. They use their quasi monopoly power to force the suppliers to lower and lower asking prices.

During the past year, the discounters were even able to increase their market share, says the head of Lidl Germany, Christian Härtnagel. The rising prices led more customers to the still relatively cheap discount stores, and sales increased.

According to Härtnagel, the current negotiations about the purchase prices are intense. “We know the development of the raw materials markets,” he was quoted as saying by the German press agency. “We know approximately how much personnel and energy costs are involved in the individual products. And we do everything we can to achieve successful negotiations so that we can also pass on the best possible price to the customer.” On the other hand, food chains like Edeka and Rewe also take products from certain suppliers off the shelves in order to put pressure on the manufacturers in the price negotiations.                                                                                      

Not a quick turn

Lidl accept that manufacturers have increased costs for energy or raw materials. “Of course, one or the other request is appropriate. We negotiate intensively so that the price increases remain within reasonable bounds – and negotiate a little longer if they are inappropriate in our opinion.”

On the other hand, Lidl wants to react quickly , when there is relaxation on the raw materials markets, says Härtnagel with a view to the past price reductions for butter, pasta or cheese. Nevertheless, it is dampening hopes of a rapid and comprehensive price turnaround.

IFH Managing Director Kai Hudetz cannot see a price reversal either. The basic prices did not rise as much as at the end of last year, Hudetz told DW. “But they only drop occasionally and then only slightly. Above all, we see promotional prices that appeal to price-conscious consumers. Price reductions can also be seen for vegetables and fruit, mostly for seasonal reasons.”

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Cheap was yesterday

According to general assessment, a return to the usual, very low price level for food will take even longer to be waited for. The market power of the big four discounters will continue to depress purchase prices as much as possible, much to the chagrin of producers. But Aldi, Lidl and Co cannot escape the increased costs for personnel, energy and distribution on their own and on the producers' side.

It is also clear to Kai Hudetz that the price level will continue to rise for a long time will stay high. Although “the intensive price competition with the high density of supermarkets and discounters will ensure that we will have to spend comparatively little on food in the future. But that does not mean that food prices will fall back to the pre-crisis level. We will at least and have to get used to higher food prices in the medium term.”