[Economics] Five loaves of bread for one dollar and oil 83% more expensive. Why do prices continue to rise in Ecuador?

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Consumer and producer feel the weight of the price escalation. Why do products continue to rise and what measures can stop new increases?

The different types of oil have had a price increase in the last year. The monthly report of the National Institute of Statistics and Censuses (INEC) indicates that vegetable oil is one of the products that has most affected inflation in July and December 2021 and in April and May 2022. 

 

The price of a liter of sunflower oil reaches $5.98 and $5.99 and it is not the only one that continues to rise. Canola has risen two dollars in the last year, in May 2021 it cost $2.39 and in May 2022 its price reached $4.39 in supermarkets. Vegetable oil is currently the product with the highest incidence in inflation and last month it ousted gasoline, which has been on the list of products with an increase for ten months. Bread from Monday is sold in some bakeries for $0.20. They no longer ship seven panels for a dollar, but five.

 

They all have a common problem: their raw materials face an international price scale. The World Bank in its Commodity Market Outlook report indicates that “the war in Ukraine has altered global patterns of trade, production and consumption in such a way that prices will remain at historically high levels until 2024, exacerbating insecurity. food and inflation.

In Ecuador, annual inflation as of last May is 3.38%. But that of the producer is much greater than that of the consumer. The Producer Price Index went from 0.72% per year in May 2021 to 7.28% in May 2022.

“It is a significant increase, producers are seeing an increase in the food sector and in all industrialized goods in that sector, this is because if the price of oil rises, gasoline and energy rise; the business cost structure is beginning to increase. We import from Europe, from the United States (where an inflationary effect is showing) not only raw materials, but also consumer goods and especially capital goods, an increase in production costs is being shown, which is translated into the retail price and citizens are feeling the effects, in the last three months the escalation has been greater due to the international price of oil”, explains the president of the Circle of Economy of Guayaquil, Larry Yumibanda.

 

Why does the oil rise? Ukraine, the main producer of sunflower oil in the world, has restricted the export of this product, limiting its availability and directly impacting the prices of other alternatives such as palm or soybean oil, explains Propalma Ecuador. And there are several countries that have limited shipments of their production.

 

Food prices were already high before, and the war pushes the prices of most foods even higher. The basic products that have been most affected are wheat (one of the agricultural commodities that has increased the most since Russia's invasion of Ukraine, countries that account for 30% of the supply), corn, edible oils and fertilizers.

Access to the latter will be a challenge in the coming months, notes the World Bank, since "fertilizer prices skyrocketed in March, rising almost 20% since January 2022 and almost three times more than a year ago. Russia and Belarus are the main exporters of fertilizers, with 38% of potassium fertilizers, 17% of compound fertilizers and 15% of nitrogenous fertilizers”.

 

Regarding the rise in prices of different products of the basic basket, the Minister of Agriculture, Bernardo Manzano, assured that the Ministry's Commercial Undersecretary is reviewing and developing advisory councils to analyze the issue of prices.

“Obviously the MAG has nothing to do with that, however, our function is going to be that the value chains are shortened, removing the intermediaries and the chulqueros from the middle, who are the ones who often distort prices. Producers must be brought closer to consumers, not only through fairs, but we also have an interesting project that has been proposed by the associations with whom we have talked every week, of being able to set up neighborhood stores where the producer approaches the consumer”, indicated.

However, for the president of the Circle of Economy, the Government's measures must go three ways to avoid another escalation that could reach an inflation of 4% or 5% per year until the end of 2022, which would be one of the highest in recent five years:

 

Temporary price control, just to prevent speculation.
A tax review with a reduction in VAT on fuels, also temporarily, for six months or a maximum of one year until the issue of Russia's invasion of Ukraine passes.
A reduction of tariffs linked to the transport sector: Carry out a detailed study to identify which reduction in tariffs can benefit so that prices do not rise so rapidly. Consider that this represents a fiscal sacrifice that is compensated by the increase in oil exports.
At the global level, the World Bank points out four priorities for countries and the international community:

Maintain food trade. Countries and international organizations must re-unite in their commitment to keep food trade flowing. The Group of Seven (G-7) has called on all countries to keep their food and agricultural markets open, and to avoid any unjustified restrictions on their exports.
Support vulnerable consumers and households through social safety nets. Maintain or expand social protection programs that help protect consumers. Many people were already cutting back on spending before the war due to falling incomes and rising food prices.
Support farmers. Protect next season's harvests by helping food producers cope with rising input and fertilizer prices and decreased availability of those inputs.
Work on resilient food systems. Food systems were already recovering from multiple crises before the war.

 

Link: https://www.eluniverso.com/noticias/economia/precios-ecuador-pan-aceite-inflacion-alzas-2022-banco-mundial-nota/