ECONOMY

Consumption declines as prices continue to rise

The prices of basic consumer products and services remain inordinately high in the Greek market, putting an even greater strain on households that have seen their incomes contract over the past two years. Eggs, sugar, vegetables, milk, coffee and even pulses have become more expensive since last year, with the rise in prices sometimes reaching 8 percent.

Also indicative of the many peculiarities of the Greek domestic consumer market is that while clothing and footwear stores have been pulling down their shutters in the hundreds all around the country over the past two years, the prices in this category of products are the same or higher than in 2011. Even in those few cases where prices have dropped slightly, their levels are nowhere near what would be expected given the depth and duration of the recession.

According to official data, the economy shrank by 17.4 percent compared to the second quarter of 2008 to the second quarter of 2012 and consumption dropped 17.1 percent. Yet the general level of prices rose 10 percent from July 2008 to July 2012.

Private consumption contracted 17.1 percent from the first quarter of 2008 (when it stood at 38.4 billion euros) to the same period this year, where consumption stood at 31.8 billion euros. Furthermore, GDP dropped by 17.4 percent in the same five years on the drop in consumption and investments, while the ranks of Greece?s unemployed have swelled to 1.1 million, or 23.1 percent of the work force.

According to Hellenic Statistical Authority (ELSTAT) figures, by July 2012 the price of eggs had risen by 7.95 percent compared to the same month in 2011, sugar went up 6.04 percent, fresh milk 3.46 percent, vegetables 4.24 percent, fresh fruit 1.89 percent, beef 1.07 percent and bread 0.88 percent. Notably, these products were not affected by a value-added tax rise.

The irrational way that the Greek market functions is also confirmed by figures from the European Commission?s agriculture directorate. Even though this shows that in June 2012 the prices of basic agricultural products used as raw materials in the production of foodstuffs declined significantly compared the previous year, the prices paid by consumers for end products have gone up. Indicatively, the price of soft wheat declined between June 2011 and June 2012 by 17.4 percent, of hard wheat by 13 percent and of corn by 26.7 percent. On the other hand, the price of bread and cereals has gone up 1.4 percent on average.

The outlook for food prices, unfortunately, is not good for shoppers. According to a July 26 report by the International Grains Council, the world?s grain production in 2012-13 is expected to decline by 4.5 percent compared to the 2011-12 period. The longest drought in the US since 1956 has resulted in massive losses of corn crops, meaning that the estimate for world production of the staple has been readjusted downward to 864 million tons from 917 million tons, with reserves expected to hit their lowest point in six years. Rice production, however, is set to grow, but only at a rate of 1 percent, against 3 percent in the 2011-12 period.

High consumer prices combined with shrinking incomes have meant that Greek consumers buy and spend less. This trend led to a 5 percent drop in supermarket sales in the first quarter of this year compared to the same period of 2011.

According to research company Nielsen, the total value of sales in the January-June period at food stores with premises of over 100 square meters in Central Greece, the Peloponnese and on the islands (with the exception of the Sklavenitis supermarket chain), came to 4.15 billion euros from 4.37 billion in the same period last year.

On an individual level, these combined factors have meant that the average Greek household?s ?shopping basket? (a product selection used for comparative purposes) now contains 50 euros? worth of products, from 65 euros in 2010, as consumers shop less, seek out bargains and often opt for generic or own-brands.

As far as generic brands are concerned, German discount giant Lidl holds 25 percent of the market and is expected to see that share rise.