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Food

Experts point out that some goods may become more expensive

Lrytas.lt
in 2023 October 24 18:00 a.m
8 min. reading
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As the war between Israel and Hamas keeps oil prices high, experts point out that some goods may become more expensive as a result. However, the excise tax on liquefied petroleum gas (LPG), which will enter into force next year, will have a much greater impact. It is guaranteed that food prices will definitely rise because of it.

Companies will try to compensate out of pocket

According to Indrės Genytė-Pikčienė, INVL's chief economist, it is wars that usually cause oil crises, and if Iran gets involved in this conflict, we will definitely see drastic price jumps.

"Iran controls a very important strait through which a significant part of oil travels to the world, so any actions can suddenly unbalance the entire oil market, which is far from balanced even now, because, as we know, the OPEC+ countries have already turned off the oil taps and are not producing enough oil into the market, which drove the price of oil to the heights, even up to 97 dollars per barrel. But this number will not necessarily be the upper limit due to the military actions in the Middle East", I. Genytė-Pikčienė explained while reviewing the economy last week.

According to her forecasts, if the military conflict escalates, more countries get involved, the price of oil may exceed the 100 or 150 dollars per barrel mark and heat up inflation, because the prices of energy carriers directly affect the prices of fertilizers, agricultural raw materials, and have an impact on other goods and services, as one area is not complete without transportation, therefore without fuel.

Citadele Bank economist Aleksandars Izgorodins also assured that due to this situation, we will probably not see monthly deflation in Lithuania.
"In September alone, transportation services in Lithuania managed to increase in price by 0,5 percent during the month. The overall monthly inflation rose by about the same amount. Therefore, I would say that such a rise in energy prices can lead to a slight inflation of goods, because it is the goods segment that reacts most sensitively to energy prices", commented A. Izgorodin.

However, the economist does not rule out the possibility that if oil prices rise further, traders may not raise prices and use their profit margins to cover the increase.

"I think we can see that in the long-dated segment, where consumption is heavily dependent on interest rates." Since the interest burden is now very high, people are buying less durable goods, say information technology (IT), electronics, all kinds of audio equipment. It is likely that such companies will still try to cut prices despite rising energy prices.

But the question is, how many profit margins are there, because companies also have increased loan payments and salaries, probably small or medium-sized companies do not have much savings to be able to compensate for the increase in energy prices from their own pockets", the interviewer told the portal lrytas.lt.

But here in the food segment it is difficult to predict what we can see. As A. Izgorodins stated, those companies whose costs are a large part of energy will probably have no other option but to raise prices, while those less sensitive to energy will try not to inflate them, because the consumption of goods in Lithuania is already shrinking.

"We are seeing a significant slowdown in food consumption, so I think such companies will try not to raise prices as much as possible, but if energy prices remain at a high level for several months in a row, it is possible that some food items will become more expensive," predicted A. Izgorodins.

And if goods become even more expensive, according to the economist, the population will somehow start to give up food items that are not the first necessity, such as gourmet goods, expensive cheeses, etc. Trade in such products could decrease by as much as 10 percent.

However, the shopping network "NorfaManager Dainius Dundulis calculates that if oil prices and the number of gas station billboards increase, there would probably be no need to increase the price of goods, as fuel does not make up the majority of the company's costs.

"Most people react in the same way when fuel prices drop by 10-20 percent. Everyone immediately expects that the prices in the stores will decrease. But such fluctuations do not affect the prices of goods. Of course, if fuel becomes 3 times more expensive, then we will definitely have to raise prices," he told the lrytas.lt portal.
"And if no force majeure happens, I don't believe that the prices will change." They are currently stable and should remain so," added D. Dundulis.

Next year, goods may become more expensive

However, the interlocutors see considerable risks for the coming year, due to which the prices on the shelves will be adjusted.

A. Izgorodin drew attention not only to the price of oil, but also to the price of gas, which in Europe in July reached about 30 EUR/MWh, and now has already exceeded the limit of 50 EUR/MWh. According to him, this only confirms that the cost pressure on business is considerable again this autumn, but at the same time it also indicates the risks of the coming year.

"There is a lot of optimism among consumers and companies, it is hoped that the crisis in the energy sector will not repeat itself.
But in the first quarter of next year, the euro zone industry will strengthen production, and industrial recovery will begin. This may mean that energy prices will start to rise in the spring of next year," he said.

Therefore, it is possible that the inflation has not yet died down and next year it will heat up again.

D. Dundulis also named from January 1 of the next year. excise duty on liquefied petroleum gas (LPG) coming into force. An excise tax of 304,1 EUR/t will be applied, after many years businesses and residents were exempted from it.

"After all, a large number of manufacturers use this gas. Last year, when natural gas became more expensive, a number of businesses switched to cheaper LPG gas, installed storage facilities, and we are also currently building storage facilities.

But next year LPG prices will become so high that it will no longer be worthwhile to use them. It goes without saying that this will lead to an increase in the cost of production, since gas is a large part of all costs for producers. Even here, gas makes up a large part of milk production, after all, steam is needed," he said, mentioning that the prices of goods could change after the entry into force of this excise duty two to three months later.

As the interviewer said, if oil becomes more expensive, it will affect the whole world, but the increase in the price of LPG will only be seen in Lithuania, so it will affect the competitiveness of our country, because just looking at the neighboring countries, we see lower numbers: in Poland excise duty – 13,14 EUR/t, in Estonia – 55 EUR/t, in Latvia - zero.

"Cheaper Polish production will be even more popular because our goods will become more expensive. Therefore, even more Lithuanians will go shopping in Poland", assured D. Dundulis.
The director of the Lithuanian Grain Processors and Traders Association (LGPPA) Dalia Rusčiauskienė also spoke about this: "Additionally taxing LPG with excise duties and the variable part (carbon dioxide component) when they are used in industry will make LPG more expensive, less attractive for consumption, and alternative energy resources will be limited supply, the security of supply of resources of industrial enterprises is reduced and, of course, the cost of production will rise. The excise tax will affect the cost of the grain drying service and will be felt first by farmers, and a little later by all consumers."

According to her, last year, when energy prices shot up, companies urgently looked for cheaper alternatives, so they invested in LPG equipment, companies even took out loans with high interest for this. According to D.Ruščiauskienė, it would take at least three years for these investments to pay off, so the fact that the excise tax is introduced before the investments even have time to pay off means that businesses will have thrown money down the drain.

TAGS:Dainius DundulisPolandmorningFoodNorfa
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