Soaring food prices across the board are hitting hard consumption in developed countries Soaring food prices across the board are hitting hard consumption in developed countries Soaring food prices across the board are hitting hard consumption in developed countries

Soaring food prices across the board are hitting hard consumption in developed countries

Christopher Dembik

Head of Macroeconomic Research

Summary:  Soaring food prices are eating household’s purchasing power in the developed countries. The 15-20 % lowest income quintile is the most vulnerable with food prices reaching records. Even with higher wages, most households are not able to cope with this new situation and face tough trade-offs (choosing between buying pasta or meat, for instance). Expect things to get worse, in the short-term. This will likely lead to a major drop in consumption in the coming quarters. It has already started in some countries (France, for instance). This is something to monitor closely as it increases the risk of stagflation and, here and there, of recession.

The index of food prices published by the Food and Agriculture Organization (FAO) surged 12.6 % between February and March. It is now standing at its highest levels since 1990 (when the index was first created). The previous record was set in 2011 (at 137 versus 159 now) – see the below chart. Both temporary and structural factors are pushing food prices higher at the global level such as higher cost for labor, ocean freight rates which has been steadily rising for more than a year, higher raw material costs, poor weather conditions (heat wave in India and Pakistan at the moment, for instance), export restriction, strong demand for various foods (chicken and other meats in several developed countries) and strong demand for biofuels which has increased speculative demand by non-commercial traders, amongst many other things.

Explanation : The FAO Food Price Index (FFPI) is a measure of the monthly change in international prices of a basket of food commodities. It consists of the average of five commodity group price indices weighted by the average export shares of each of the groups over 2014-2016. See this article for further technical background on the construction of the index.

Expect things will get worse, in the short term at least. We already know how vulnerable emerging and developing countries are to food price fluctuations (32 countries in Africa are importing more or less 90 % of basic foods). This means higher political instability in the emerging world. But what is new is that developed countries are hit hard by soaring prices too. Several developed countries are experiencing strong wage increases since the reopening of the economy (even in the eurozone where wages are finally catching up). But this is not enough to cope with higher inflation. Our baseline is that the lowest income quintile in the developed world (around 15-20 % of households) will face a severe income squeeze in the coming months.

A lot of food items are price inelastic – or not responsive to price. But not all of them. We say that prices are inelastic when a price increase does not induce a drop in consumption (most of the time, because the items are considered as essential). According to the U.S. Department of Food, the price elasticity of U.S. household demand for bread and cereals is at 0.04 – when the reading is much below 1.0, it means that the item is not responsive to price. This makes sense. Bread and cereals are often basic items in the grocery list for the poorest households. There is no immediate substitute either. Studies show only a major increase in prices  for basic items can lead to a drop in consumption - meaning a double-digit increase. The U.S. Department of Food takes the example of a 25 % increase in bread prices leading to a 1 % fall in consumption. However, some food items are price elastic, such as food away from home, juice, soft drinks etc. According to the U.S. Department of Food, a 10 % increase in soft drink prices should reduce consumption by 8-10 % on average. The poorest households are now facing a trade-off between eating pasta or fresh meat. This is as basic as that.  A study from France’s national office of statistics (INSEE) shows that when the prices of cereals and pasta increase by 1 % on average, this induces a drop of 0.23 % of the quantity of consumed meat, for instance. Basically, households give up on what is seen as the most expensive or ‘luxury’ expenses in the grocery list. 

Higher food prices will cause a major drop in consumption. In the current context of prolonged high inflation, the consumption of essential food items (inelastic prices) will likely remain stable in most developed countries. But the consumption will drop for other food items and unnecessary expenses (trips, electronics, hotels etc.). Several countries are already experiencing a significant decrease in consumption. In France, household consumption of goods fell 1.3 % in March 2022 in volume. The drop is mostly explained by a decline in food consumption (minus 2.5 %). Looking into details, this only concerns inelastic food demand (sweets and sugar, eggs, cheese etc.). This is cause for concern. In most developed countries, consumption is the main driver of economic growth. This increases the risk of stagflation or, in some cases, of recession (typically in the United Kingdom). Expect political turmoil as well. From where I am sitting (in Saxo’s Paris office), I would not be surprised that France will face massive demonstrations after the summer break with people getting down in the streets to protest against high cost of living and high food prices (remember that the 2018 Yellow Vest Movement was initially caused by an increase in fuel prices). What is certain is that we will not experience another Roaring Twenties, contrary to what several colleagues believed when the developed economies reopened in Spring last year. The economic outlook is gloomier.


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank (Schweiz) AG
The Circle 38

Contact Saxo

Select region


All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.