The data comparison comes from the report titled Latest development of food consumer prices in the Eurozone and Spain, issued this week by the Bank of Spain. It highlights a delay in passing changes in production costs to final prices. This lag helps explain why manufacturers are seeing cost reductions, yet these savings have not yet showed up in retail prices.
Specifically, flour and other grains still show high inflation around 36.8 percent. Bread remains elevated at about 15.4 percent, with signs of fluctuation in pasta and couscous. Bank of Spain data indicates a shift from 31 percent to 19 percent in related measures. The INE reports for January and February begin to show a slight fall in bread inflation, down to around 13.2 percent, which could be read as a modest fluctuation if confirmed.
According to the Bank of Spain, the transfer of cost changes to final prices can take one to two years. Angel Gavilan, the director general of Economics and Statistics, spoke last week, anticipating the results published this week. He noted that food prices have not yet peaked in Spain and that the rate of change in the Consumer Price Index will likely rise through 2023, with an expected average of 12.2 percent, adding to the 12 percent seen in 2022.
milk case
The Bank of Spain’s analysis confirms that, as with bread, the upstream costs affecting prices are easing for milk production. European milk production costs began to climb sharply from spring 2021, driven largely by higher prices for cattle feed. This factor accounts for roughly 60 percent of total milk production costs.
In this context, dairy producers faced a significant cost increase and squeezed margins during much of 2021 and early 2022. The report notes a shift in profitability, with dairy farmers facing pressure as higher costs outpaced revenues, and a reduction in the efficiency of dairy cows in the use of feed. Consequently, there was a notable decline in Spain in the dairy cow stock. Raw milk supplies decreased across Spain and the EU in 2022 and into 2023.
As costs rose and raw milk supply fell, the price at the origin for milk climbed sharply from late 2021, reaching record highs by the end of 2022 both in Spain and across the EU. The report points out that while costs for animal feed and energy began to ease, the late 2022 price increases reflect a delayed translation of cost rises observed since mid-2022. This context helps explain recent movements in milk prices observed in Spain.
Finally, the early price increases in milk production fed through to processed dairy products such as yogurts and cheeses. These products were also affected by higher costs in other parts of the production and distribution chain. For example, bottling and packaging accounted for around 20 percent of production costs in 2021, with energy costs contributing to those increases as well.