Why are food prices falling as energy costs rise?

Energy bills are rising, but food is cheaper on average than a year ago. How can these developments be reconciled? Current production costs tell only part of the story. According to De Nederlandsche Bank (DNB), earlier cost reductions are still working their way through the supply chain. This means food prices can fall even as processing and transportation become more expensive.

Commodity prices feed through with a delay

In August, September and October, food was cheaper on average than a year earlier. This is largely due to lower commodity prices. Good European harvests pushed down grain and oilseed prices last year. Global prices for coffee, tea, cocoa and sugar were also below their previous peaks.

Businesses often fix prices in the food supply chain for extended periods. Supermarkets and suppliers, for example, negotiate only a few times a year. Cost changes may therefore only feed through when new pricing agreements are reached.

Energy costs and margins

Energy affects the costs of food processing, transportation, fertilizer and packaging. Lower energy prices in 2025 continued to hold down food inflation through July. Since March, however, energy prices have risen again. These higher energy costs are gradually feeding through to food prices.

Businesses do not always pass on higher costs immediately or in full. They may also accept a lower profit margin. Conversely, lower costs can increase margins if selling prices fall by less. What consumers pay therefore also depends on these pricing decisions.

Food prices rose in October

Food is cheaper on average than a year ago, but prices are not falling every month. In October, food prices rose by 0.4% compared with September. Earlier cost reductions are still offsetting higher energy prices. If businesses pass on more of their higher energy costs, food inflation could pick up again.

The monthly increase could be an early sign of a turning point. However, temporary price fluctuations could also explain the increase, such as special offers in the previous month.

Dnb.nl