Hive PPP index - How have product prices changed over the past year?

Good morning, everyone from the Finance and Economy community!

The world is constantly changing. We notice this whenever there is a “hiccup” or a sudden jolt. As far back as 2010, when Portugal was facing a major recession caused by excessive increases in public debt, the talk of competitiveness, the stagnation of the financial sector, and the lack of diversity and low penetration in international markets, with the trade balance tilting heavily toward imports. Many disastrous public investments led us to that point, and I remember very well when, in 2011, the government had to request assistance from the IMF—the International Monetary Fund—the European Commission, and the European Central Bank, through the mechanism that came to be known as the Troika—due to the three entities involved.

Between 2000 and 2012, public debt rose from 50% to 126% of GDP, which, due to the anemic growth of the Portuguese economy, led foreign markets—and notably the major credit rating agencies—to give the Portuguese economy a poor rating, resulting in disinvestment both from abroad and domestically.

Following that major economic event—which left its mark on a society that was somewhat unbalanced in terms of middle-class wages, as the gap between the middle class and the upper-middle class widened—we faced yet another event, this time on a global scale, which initially affected virtually every economy. In early March 2020, the first case of infection with the novel coronavirus was reported in the country. Lockdowns, remote work, school closures, online shopping, and significant investment in the healthcare sector and prevention measures, such as vaccination. Much has changed since then... Economies had to readjust. The business community, and especially workers in sectors less dependent on their physical presence, embraced a new paradigm: remote work. The benefits—such as reduced employee commuting costs, lower energy consumption in offices, and even savings on facility maintenance and cleaning—demonstrated that a hybrid model was feasible. Not entirely remote, but partially so. This brought advantages to both parties involved.

In addition to this pandemic, there was also a container crisis; due to multiple mandatory lockdowns in the Asian region, supply chains were disrupted, and congestion at various seaports led to increased transportation costs.

Shortly thereafter, Europe faced yet another financial crisis. This time, in the first quarter of 2022, when on February 24 the Russian Federation launched a large-scale invasion of Ukrainian territory. The entire energy grid was thrown into disarray. “Blind” investments spearheaded by Angela Merkel, who trusted in a shift among the players, investing in a gas pipeline that would connect Russia to Europe—which would significantly reduce production costs and stimulate a long-anemic and sluggish economy... But none of that happened. A calculating and, in a way, autocratic leader has brought chaos, spreading terror and crashing markets, with food prices (such as grain and corn) reaching historic highs, and essential chemicals for the fertilizer industry rising. The price of gas and petroleum products once again put pressure on the markets, leading to ever-increasing distribution costs, which were reflected throughout the entire production chain.

Recently, a conflict that has been simmering for many decades has erupted into open hostilities. An Israeli attack, backed by the U.S., has triggered a crisis at one of the most critical distribution hubs connecting the Middle East with Asia, Europe, Africa, and virtually the entire world. 80% of global trade is conducted by sea, and of that total, approximately 20–25% of the world’s oil, 20% of its gas, and fertilizers pass through the region’s ports and can only leave via the strait.

This has triggered yet another surge in energy prices, particularly affecting liquid fuels.

Although I am not very dependent on driving my own car, I confess that it is what I use daily to commute from home to work. Fuel prices, and since the start of this latest phase of the conflict between Israel and Iran, have risen in Portugal by about 30% for diesel and 14% for regular gasoline.

Even those who don’t use their own car extensively end up noticing the marked increase in monthly travel costs.

This reminded me of a post that Hive account@livinguktaiwan published last year comparing the cost of living across various countries, using a selection of food items and other goods she had chosen as a reference. I took the opportunity to use the figures I had published in a response article and compared prices between the two dates, which are just over 12 months apart.

In percentage terms, a lot has changed in Portugal over the past year or so... The fixed price for a basic 5 GB data plan has dropped by nearly a third, as other providers have entered the market, significantly reducing profit margins. Additionally, there has been an increase in demand for plans with more mobile data, so the “base” price has remained stable while offering more mobile data. This has substantially reduced monthly costs for plans with lower data limits.

Liquid fuels in Portugal are subject to a massive tax burden, and as a result, any small adjustment to this commodity is reflected more sharply in the composition of its final price to the consumer. I think this is somethin the Portuguese government should study, because in comparison, even right next door in Spain, prices are much more competitive—several dozen cents lower. This fact means that people who live near the Spanish border, or who plan a trip to the neighboring country, fill up their tanks just across the border, which can sometimes mean a savings of about 8 euros per fill-up. And when I compare prices, I do so, for example, among gas stations selling the same brand.

The price of the flour, the can of Coca-Cola, and the 500-gram package of spaghetti has not changed at all. I think this may be due to various advertising campaigns that ALDI, in particular, runs. In these campaigns, they promise to keep prices steady on certain types of food products or similar items. And the ones we have here, for example, are widely consumed by most families. I must admit that among these three, there isn’t a single one that I use on a daily basis...

The egg production industry has faced enormous market pressure. The various outbreaks of avian influenza that affected several major producers with a large share of the national market led to a sharp drop in their production levels due to the forced reduction of their flocks. But I believe that a shift in dietary habits has also contributed to an increase of nearly thirty percent in just over a year.

Beef prices rose by a similar margin, reaching 24.5%. Production costs and the distribution chain were major contributing factors. Another item that has seen a price increase over the past year—and has been subject to successive price hikes—is fresh fish.

Potatoes, as well as other food products, have seen price increases ranging from 10 to 20 percent. Some vegetables have reached prices never seen before, such as zucchini and collard greens. I know this well, as these are two vegetables I often buy to make soup.

It seems it’s better to keep drinking beer, since the price has only gone up by 2.5%, even taking into account the decline in the regular supply of grains that has been occurring since the Russian Federation’s invasion.

What are your thoughts on the current global economic situation? A lot has changed today... and what used to be considered news—or announcements that could have a major impact on the markets—is now almost instantaneous and dictated by the pace of social media posts.

^{Photo taken in Aldi}

^{Photo taken in Aldi}

^{Photo taken in Aldi}

^{Photo taken in Aldi}

^{Photo taken in Aldi}

^{Photo taken in Aldi}

^{Photo taken in Aldi}

^{Capture taken from ContinenteOnline}