Price of chicken and vegetables continues to rise: how does it affect the economy and how can it be solved?

In recent months, there has been a reported increase in food prices. Now, the basic basket has increased to S /1,500 soles. In addition, the indeterminate stoppage of freight carriers is jeopardizing the supply of retail markets in various cities of the country.

This rise in prices occurs when inflation in the country is reaching levels that have not been perceived for decades. According to economist and political analyst Miguel Santillana, figures from the National Institute of Statistics and Informatics (INEI) indicate that:

“The national inflation rate for March is 1.5, the highest in the last 10 years. Cumulative inflation in the last 12 months, since March 2021, is 7.46: also the highest in 10 years. If one analyzes only for the city of Metropolitan Lima, the Consumer Price Index (CPI) is 1.48, the highest inflation in 26 years. The same is true for the CPI for Lima (region), which is 6.83: a figure not seen in more than 20 years.”

FOOD PRICES

The price of chicken has increased gradually, slowly, but in some regions it reaches figures higher than S/15 soles. According to the Marketing and Prices Bulletin of BIRDS - March 2022 of the Ministry of Agrarian Development and Irrigation (Midagri), this Thursday, March 31, “the chicken standing was sold at S/6.87 per kilogram, increasing by ten cents compared to yesterday; not being able to sell the total amount offered”.

Thus, economist Jorge Carrillo Acosta points out that the increase in Peru is a direct consequence of the international increase in maize and wheat.

“When the pandemic started there was a supply problem, because we were all confined to the house and then the same amount was not sold. But when the restrictions end there was a global overdemand and this caused the price of corn to skyrocket. And it was normal due to the context of the pandemic, but it was expected to normalize in 2022. However, with the issue of Ukraine and Russia, the problem was detonated again, because Russia and Ukraine are among the top 5 producers of corn in the world, they are known as the granary of Europe,” he pointed out to this media outlet.

According to the Midagri bulletin, in the last seven days, the price in retail markets was S/ 10.53 soles. However, March 30 saw an increase of S/1.39 soles, costing S/11.92 per kilo of chicken.

In the case of vegetables, the average price increase is 107%, according to the Report on Income and Prices in the LARGE WHOLESALE MARKET OF LIMA del Midagri.

In this case, it has greatly influenced the increase in the international price of oil, which “at one point was almost $150 a barrel,” according to Carrillo Acosta. Currently, this hydrocarbon would trade at $100, but it continues to remain at a higher price compared to last year.

“In Peru we are net importers, 80% of the oil we consume is imported. The international price affects us greatly because the price of gasoline, diesel and other LPG derivatives increases. That makes it more expensive to bring you, for example, onions from Arequipa to Lima or to bring lemons from Piura to Lima or bring vegetables from Huancayo Jauja to Lima,” explained the economist.

Climatological factors also influence the situation, but in a secondary way.

GOVERNMENT ACTION

Given this situation, the Government has arranged for three months to incorporate 84- and 90-octane gasoline and 84-octane gasohol into the Price Stabilization Fund of Petroleum Fuels (FEPC). It was also incorporated, until the end of April, into Diesel 2 and Liquefied Petroleum Gas (LPG) in bulk.

“But this is not a direct subsidy. What it does is lower the price at which the producer buys from the importer. But that's not necessarily going to translate into the price you sell to the wholesaler or retailer. There is no guarantee that this subsidy reduction will reach the consumer,” said Carrillo Acosta.

The economist argues that the Government should focus on improving the amount of income that Peruvian citizens receive and the quality of employment. Working conditions and informality in the country are more unfavorable than in years prior to the COVID-19 pandemic.

“Before the pandemic, the average income of the Peruvian, according to INEI, in December 2019, was almost S/1,600 soles. Now it's about 1450 suns. In addition, we already have almost 80% informality,” he added.

However, discrepancies within the cabinet of ministers would make this possibility difficult. Miguel Santillana mentions that the Minister of Economy, Oscar Graham, is being overlooked on multiple occasions. For example, the elimination of outsourcing of services, by the Ministry of Labour and Employment Promotion (MTPE), according to the economist, had occurred without consulting the MEF.

“The position of the Minister of Economy is one of the weakest in the last 30 years and it is extremely dangerous because it reminds the Minister of Economy of Alan Garcia,” he said.

Therefore, he argues that what Pedro Castillo's government must do first is “have a clear north”, then “put capable people in key positions, not filling the State with government supporters and not making dirty deals under the table.”

PROBABLE SCENARIOS

The big question for families is “when will the matter be resolved?” Jorge Carrillo Acosta argues that we still have months left where the family economy will be hit.

“What is expected is that at least this year these prices will accompany us. Hopefully, in the second half, from July onwards, international prices for oil, corn, wheat, soybean oil and other general inputs could begin to fall. Already for the first half of 2023 we could talk about normalization, but for now this issue is going to hit us a long time”, he said.

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