Price shock without effect: olive oil defies inflation

Our figure of the month 10/2024

30.09.2024

In contrast to the development of the general consumer price index, olive oil prices have risen massively over the past year. This is due to poor harvests caused by the weather and increased production costs in the countries where the oil is grown. For example, olive oil prices rose by almost 35% in August compared to the same month last year, while food prices in general only rose by just under 1.5% in the same period.

In such cases, economic theory assumes that consumers will adjust their behaviour accordingly and – ceteris paribus – reduce their consumption of olive oil in favour of substitute goods. In the case of olive oil, the choice of alternative products is sufficiently large: depending on the intended use, other oils (e.g. sunflower oil or rapeseed oil), butter, margarine or other animal or vegetable fats can be a good alternative. Prices in these product groups have been comparatively stable or even fallen so far (see Figure 2).

However, a look at the experimental economic statistics on product groups in food retailing from the Federal Statistical Office seems to refute these assumptions based on consumer theory. Figure 1 shows olive oil sales (i.e. the quantity of olive oil sold) in the retail trade and the price development of olive oil. The doubling of prices has no negative effect on the quantity of olive oil sold. At the current margin, the quantity sold is even higher than at the beginning of the time series, when the price of olive oil was only half as high. 
 


 

This cannot be due to a lack of favourable alternatives: Figure 2 shows the price development (dashed lines) of the possible substitutes as well as their seasonally adjusted sales (solid lines). In the comparison group, olive oil shows both the highest price increase and the strongest (seasonally adjusted) sales development.
 


 

The reasons for this observation are unclear. One possible explanation could be that olive oil belongs to a completely different market segment than the supposed substitutes. It could be that olive oil is primarily purchased by groups of buyers who are not subject to budget restrictions with regard to their olive oil consumption. Those who pay attention to the price when buying oil are therefore likely to have opted for cheaper alternatives even before the price increase. Accordingly, no adjustments in sales are recognisable even after the price increase.

Our projects in the thematic area ‘Demography, households and consumption’ are dedicated to such and similar analyses of consumption patterns depending on the economic, demographic and geographical characteristics of households.


Other figures can be found here.

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