• For Europeans, a cup of coffee is an essential part of the daily routine.
• But a dramatic increase in the price of this staple is bringing home the impact of inflation.
• If prices keep rising, this drink, once taken for granted, may soon be an expensive luxury.

Inflation is putting pressure on household budgets across the world. But how can you tell what the headline rate of price increases will mean for you?

Headline inflation across the 19 countries that use the euro hit 10.7% in October 2022, the highest rate since the single European currency was introduced, CNBC reported. The most significant factor was energy prices recording an annual rise in October of 41.9%.

The annual increase in the cost of food, alcohol and tobacco was 13.1% in October 2022, up from 11.8% a month earlier. Headline inflation for October hit 12.8% In Italy, CNBC said, reporting rates of 11.6% in Germany and 7.1% in France.

How is inflation measured?

Most national inflation figures are based on changes to the prices of a selection – or basket – of goods and services that statisticians think represent what a typical household might buy on a regular basis.

Although this produces a national inflation figure, your personal rate of inflation depends on what you actually buy from day to day. The UK Office of National Statistics, like many other official sources, provides a calculator to help you work out your personal rate.

In a bid to make headline inflation rates more relatable, experts have come up with some alternatives. In 1981, the late Financial Times journalist Nico Colchester proposed the Mars Bar Standard, an inflation index based on how much you need to earn to buy a chocolate bar.

Similar indexes have been created based on the price of the chocolate Freddo bar and the Big Mac burger. Now the European Union’s statisticians have come up with an even more universal measure – the price of a cup of coffee.

How expensive could coffee become?

Eurostat data shows that the price of a cup of coffee rose by almost a fifth (16.9%) in the year to August 2022. By contrast, the cost of coffee across the EU increased by just 0.5% in the previous 12 months.

“Kicking off the day with a mug of hot coffee is a daily routine for many,” says the European Commission. “However, recent price rises might make this morning staple almost a luxury.”

If you take your coffee with milk or sugar, the impact of inflation has been even sharper, with the price of fresh whole milk 24.3% and low-fat milk 22.2% higher across the EU in August 2022 than 12 months before.

Adding sugar to your cup has become even more expensive, with the EU price of sugar 33.4% more expensive over the same period. By contrast, sugar prices only increased 0.8% between 2020 and 2021.

Finland has experienced the biggest surge in coffee prices – up over 44% in the 12 months to August 2022 – while adding sugar to your coffee in Poland is over 109% more expensive. The steepest increases in milk prices – over 50% – have been felt in Hungary and Lithuania.

The European Coffee Index mirrors the findings of the World Economic Forum’s September 2022 Chief Economists’ Outlook, which warned we were living in a time of significant economic danger.

Navigating “uncharted waters”

Inflation has surged to levels not seen in a generation as expectations for growth are being cut around the world, it said. “Real wages and consumer confidence are in freefall, adding further headwinds to growth and even raising the prospect of social unrest,” the report added.

Noting that the global economy is in “uncharted waters”, the report stated that measures to reduce inflation risk triggering a recession and a spike in unemployment, while support for struggling households is adding to public borrowing levels already swollen by the pandemic.

More than nine out 10 of the leading global economists polled for the report said they expected inflation to remain high in Europe and the United States for the rest of 2022, although they expect inflationary pressures to ease in 2023.

“The immediate outlook for the global economy and for much of the world’s population is dark,” the report concluded. “The challenges… outlined in this report are daunting. They will test the resilience of economies and societies and exact a punishing human toll.”

Source : World Economic Forum 7th Nov 2022