German Butter Is Spreading Optimism About Europe’s Economy

German Butter Is Spreading Optimism About Europe’s Economy
Daniel Johnston

9 months ago2 mins

You’ve got to feel for the eurozone. The bloc managed to weather a serious energy crisis and finally saw those prices come down, only to find food inflation quickly taking up its place. Since the start of last year, food prices have actually risen an eye-watering 20%. And while economists are generally confident food price inflation has peaked, what’s less clear is how long it’ll take to simmer back down.

And that’s where German butter could be exactly what the doctor (and economists) ordered – and not just because it makes everything taste better. See, the German butter market is somewhat peculiar: its creamy deliciousness is so important in Deutschland that its prices are renegotiated between producers and buyers every few weeks. That means the market is a lot more dynamic, and allows lower producer costs to be reflected in consumer prices much more quickly than in other markets – where negotiations happen only every six or 12 months.

From the chart, then, it’s clear that Germany’s cutting through butter inflation like a hot knife, sending it sharply lower even as it continues to rise in other European markets. That’s thanks to a drop in producer prices of livestock feed and energy, and it’s also about more than just butter. After all, it should mean producers of other foods are also seeing lower prices and – assuming they pass those savings on – that suggests the prices of other foods will eventually start to slide soon too.

And that’d be a tasty treat for Europe’s stretched consumers. It wouldn’t simply bring down the cost of their trips to the market: falling food prices might allow the European Central Bank to say auf wiedersehen to the interest rate hikes it’s been using to bring down inflation across the bloc as early as this summer. And that’d give a sweet boost to the whole eurozone.

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