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Global Economy

Why the bun is getting so much more expensive

To say that Oliver Klein is considering a price increase this year would not be entirely accurate. The bakery manager is not thinking about one price increase, but about two – one in spring and another in autumn. Overall, his baked goods are likely to be around 15 percent more expensive.

How are customers reacting?

A look at his gas bill shows that the first price increase is hardly avoidable. He needs gas for the ovens he uses to bake his bread. While he paid around 16,000 euros for it in December, it was around 35,000 euros in January with slightly lower consumption. Klein says he can't remember his costs ever increasing that much. He has been in business for more than 30 years and operates around one hundred branches in North Rhine-Westphalia.

In addition to energy costs, raw materials are another major price driver for bakers. Engelbert Schlechtrimen, who runs three bakeries in Cologne, pays around 50 percent more for butter and flour than a year ago. Price increases are therefore inevitable for him too, but they present him with a major dilemma: "If we raise prices too much, customers will change their buying behavior," says Schlechtrimen. It is conceivable that some of them will then buy from discounters instead. "Then the total sales will be just as high for us in the end as before the price increases," says the master baker. "We have to make a real effort to make money." He fears that many smaller bakeries could disappear from the market as a result of the cost increases.

Minimum wage could drive prices up further

The fact that a second price increase could be imminent in the bakeries in autumn is due to the planned increase in the statutory minimum wage. As early as July, it should rise regularly from the current EUR 9.82 to EUR 10.45. The Federal Ministry of Labor then plans to increase this to twelve euros per hour on October 1st. Since wages are usually low in bakeries and sales are labour-intensive, this should have a major impact.

Many of his sales assistants are already paid more than twelve euros an hour, reports bakery managing director Klein. Among them would be the temporary workers in particular, but in his estimation not only they will benefit from the higher minimum wage. It's not easy to convey to his employees if, after several years of training, they earn little more than an 18-year-old temporary worker who might still be living with their parents, says Klein: "I think there will be a certain amount of wage pressure which will raise wages from the bottom up."

Of the 15 percent price increase he calculates for this year, about half is due to the higher minimum wage. The other half is distributed among price increases for energy and raw materials.

Food price inflation particularly high

What is particularly clear from the example of bread and rolls also applies to many other foods. Surveys by the economic research institute ifo show that two-thirds of food manufacturers are planning price increases in the coming months.

In the past year, food prices have increased by around three percent, which roughly corresponds to the general price trend. That could change dramatically this year. While the general inflation rate will be around four percent according to the ifo estimate, food could become as much as seven percent more expensive. The ifo Institute attributes this to the development of world market prices and anticipates that food could become "a key inflation driver this year".

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