How much does this drink cost?

Josep Maria Arauzo
Researcher at the Department of Economics
josepmaria.arauzo(ELIMINAR)@urv.cat

If you are reading this, there is every chance that you are the terrace of a bar or café, leisurely enjoying a beer and perhaps some crisps or olives. These are everyday products and have traditionally been accessible to everyone, but lately you'll have noticed that their cost has risen significantly. This inflation is not the result of a decision by the establishment where you are right now, but by a whole set of systemic factors that have generated a widespread increase in prices across all areas of our economy and those further afield.

A few years ago now, in early 2020, the first cases of COVID-19 were reported in China. At the time, no one was aware of either the health impact the virus could have or how it might transform the global economy. When the governments of most countries in the world began to impose lockdown measures (in early March 2020), the vast majority of the population (and economists) believed they would be temporary, that at most they would last a few weeks, that the virus would subside with a certain speed and that, consequently, everything would return to normal. Unfortunately, this was not to be the case.

The lockdowns in 2020 had effects that went far beyond their short-term impacts. Indeed, the disruption to supply chains around the world caused significant distortions to global trade, and many businesses suffered the consequences. As a result, thousands of jobs were destroyed and many companies had to close down. This process led to shortages of many products (especially those whose production had been outsourced to Asian countries) and, as a result, prices rose significantly.

Furthermore, while these effects were still being felt in the economy, Russia invaded Ukraine in February 2022, which dealt another severe blow to world trade, especially regarding staple food products such as wheat and sunflower oil. These disruptions had immediate consequences: food prices climbed again; for example, in Catalonia in 2022 the prices of unprocessed food products increased by 8.9%, and those of processed food products climbed to 14.7%. Similarly, the interruption of the supply of Russian gas to the EU caused inflationary effects that quickly spread to the rest of the economy.

Moreover, these events coincided with the worldwide implementation of measures to reduce CO2 emissions and increase the sustainability of economic activities, policies that have an immediate effect in terms of higher production costs and, by extension, higher prices.

All of this has led to the current situation of high prices. We find ourselves in a situation where we are learning to live with levels of inflation not seen since the 1980s and which have very negative effects on the entire economy, because when prices rise, everyone loses out: businesses because they are less competitive and workers because their purchasing power is eroded and their standard of living falls.

To make matters worse, the price of the drink you're having is inseparable from the effects of the weather on the wheat, potato or olive harvest; climate change is generating more and more extreme events (remember the flash floods in Valencia in 2024?), which very often damage crops and automatically lead to a rise in the price of raw materials. Since 2024, food prices have tended to rise more slowly, but this only means that the increases have been smaller, and in no way have we returned to where we were four or five years ago.

The solutions to this whole set of challenges and transformations facing the European economy will be neither simple nor immediate, but in large part they will involve restoring, to a large extent, European energy sovereignty (which means the widespread adoption of renewable energies in place of fossil fuels a corresponding significant initial adjustment). To a lesser extent, it will mean redefining the current process of globalisation to ensure that the production of certain strategic goods is kept on our continent, even if this means increasing their costs and making everything a little more expensive. And that means that inflation is here to stay.