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The Impact Of Rising Coffee Prices on Consumer Habits

Coffee prices have surged by up to 20% over the past few months, compelling consumers to rethink their habits. This increase is reflected not only in supermarkets but also in cafes, where the beloved drink of the Greeks is experiencing a new trial.

In particular, Greek and instant coffee, which make up 70% of retail sales by volume, saw a price hike of 14% and 11%, respectively. Meanwhile, espresso coffees—ground and in capsules—saw an average increase of 6%.

The price of a 200-gram package of popular instant coffee now stands at €9.38, up from €8.48 in February, while a 340-gram package of Greek coffee has risen to €7.60 from €6.30.

Cafeteria Prices Keep Climbing

The cost of coffee outside the home has also edged up, with increases ranging from 5% to 20%. While the hospitality industry tries to absorb these increases, operational costs like wages, rent, and energy remain principal concerns. Recent tax changes, like the VAT increase from 13% to 24%, coupled with the Special Consumption Tax, further burden the sector.

The Influence of Market and Production Factors

The surge in coffee prices is largely due to market concerns over this year’s harvest in Brazil, the largest Arabica coffee producer globally, and a significant drop in Robusta exports from Vietnam. The price of Arabica coffee hit a historic high of $440.85 per pound in February, a 17.72% increase since the start of the year.

Consumers are adapting by drinking more coffee at home, with only 30% of consumption happening outside the home, down from 60% pre-COVID-19. Many chase promotions and opt for more affordable private-label brands.

Embracing New Buying Patterns

In January, consumers rushed to take advantage of steep discounts offered by multinational companies on instant, Greek, and espresso capsules before the expected price increases. This led to a turnover of €54.11 million in retail, up 4.6% from 2024, according to market research by Circana.

Interestingly, despite a 14.1% decrease in espresso sales, private-label products gained significant traction, increasing by 36.5% over the same period, with sales doubling since 2021. Espresso capsules are now chosen based on available offers, making it a competitive market with no brand holding more than 35% market share.

In summary, while coffee remains a staple, changing market dynamics and economic factors are shifting consumption patterns, offering an array of opportunities and challenges for retailers and producers alike.

Euro Zone Inflation Rises Above 3% As Energy Costs Add Pressure On ECB

Euro zone inflation accelerated to 3.3% in August from 2.9% in July, driven largely by higher energy costs and adding pressure on the European Central Bank ahead of its September meeting.

Consumer prices across the 21 countries using the euro rose as crude oil and natural gas prices increased, while refiners lifted margins, according to Eurostat. The latest figures also reflect renewed pressure from the Iran war, which has added uncertainty to global energy markets.

Energy Costs Drive The August Increase

Energy was the main factor behind the acceleration in headline inflation. Rising oil and natural gas prices have increased costs across the energy market, while higher refining margins added to the pressure.

The latest increase comes as geopolitical tensions continue to affect expectations for global energy prices. That could complicate the ECB’s assessment of how long the inflationary effects will last.

Core Inflation Offers Some Relief

Underlying price pressures remained more contained in August. Core inflation, which excludes volatile food and fuel prices, eased to 2.4% from 2.5% in July.

Services inflation also slowed, falling to 3.0% from 3.3%. The moderation suggests that higher energy costs have not yet produced a broad acceleration in underlying inflation, which could otherwise require a stronger monetary policy response.

September Rate Hike Is Widely Expected

The August inflation figures are broadly consistent with the ECB’s own expectations and reinforce market expectations for a deposit rate increase to 2.50% on Sept. 10. Financial markets have already priced in the move, making the September decision relatively well anticipated.

Attention is therefore shifting toward the ECB’s policy path after September. The outlook is less certain, with economists divided over how persistent euro zone inflation will prove to be and how much further rates may need to rise.

Economists See A Possible Pause After September

Many economists expect the ECB could stop tightening after September, leaving interest rates near what is often described as the neutral range. Such a level would neither materially stimulate nor restrain economic activity.

Several factors support that view. The labor market remains relatively soft, wage growth has not shown a pronounced acceleration, and economic growth is running at around 1%, leaving the region exposed to further weakness if geopolitical tensions persist.

Markets Price In More Tightening

Financial markets are taking a more hawkish view of the policy outlook. Many traders are betting on two additional rate increases over the next year, arguing that higher energy prices could gradually feed into broader pricing decisions.

Natural gas prices are also rising, while the euro zone economy has so far shown resilience despite war, tariffs and tighter monetary policy. Some analysts expect the global rate environment could remain restrictive as central banks, including the Federal Reserve, potentially keep borrowing costs elevated for longer.

December Could Become The Next Key Decision Point

Even if the ECB ultimately determines that additional tightening is necessary, policymakers appear to have little urgency about follow-up moves. The central bank could skip the October meeting and wait for its next round of economic projections in December before deciding whether further rate increases are warranted.

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