When the energy prices rose last year, we expected the supermarket prices to rise as well. But now the energy prices are declining: can we expect the supermarket prices to decline as well? Aart Gerritsen, Assistant Professor at Erasmus School of Economics, explains in an interview by RTV Rijnmond (6 March 2023).
The Assistant Professor notes that February’s inflation for groceries was 15%, but that the energy prices have declined. Gerritsen does not expect the grocery prices to fall anytime soon. He gives two reasons for this expectation.
The first reason is that the costs for supermarkets are still rising, even if the energy prices continue to fall. Gerritsen explains that the higher energy prices still have an impact on final retail prices, as higher energy prices affect final retail prices with some delay. What’s more, other costs for supermarkets are rising as well, for example the higher prices for poultry and eggs due to the soaring bird flu and the higher labour costs due to the 10% rise in minimum wage this year.
The second reason is that consumers continue to consume very much. The demand is high and continues to rise, which has a price driving effect. Even if everything becomes more expensive.
Hence, the persistently high demand and higher costs for supermarkets means we can expect the supermarket prices to remain high and continue to rise. If the fall in energy prices were to continue and other costs also started to fall, and demand decreased, prices might go down. But that chance is very small. And even if costs for supermarkets do go down, then the question is whether supermarkets pass on that cost reduction in price. That depends on how competitive supermarkets are.
- Assistant professor