Energy prices go up, but food prices go down: what’s going on?

In August, September and October, food prices in the Netherlands were, on average, lower than a year earlier. Economists refer to this as negative food price inflation. The decline was evident, for example, in milk and fats. In September, semi-skimmed and skimmed milk were around 7% cheaper than a year earlier, and vegetable oils 13% cheaper. For butter and other milk fats, the fall was even greater, at 31%. Beef also fell in price by 8%. However, not everything became cheaper, nor have the price rises of recent years been reversed as a result. The average price fall will therefore not necessarily be noticeable to households every time they go grocery shopping.

Negative food price inflation is quite rare: since 2016,it has only been recorded in 2021. Falling food prices are now holding back headline inflation, in stark contrast to the situation a few years ago. Between 2022 and 2024, food price inflation remained high for a long time, reaching as much as 15% (Figure 1). High energy prices following Russia’s invasion of Ukraine and sharp price rises on international food markets contributed to high food prices.

The price consumers pay depends on costs and pricing decisions at various stages of the food supply chain.

It all starts with food commodities, such as grain, coffee and sugar. Farmers supply their produce to the food industry, which processes it into food products. They reach consumers via supermarkets and specialist food shops. Costs are incurred at every stage of the process, for example for energy, staff, transport and packaging. Changes in these costs may ultimately be reflected in retail prices.

That does not happen straight away, nor are changes always passed on in full. Firms can partly offset higher costs by accepting a lower profit margin: the surplus of their sales revenue over costs is then reduced. Conversely, lower costs can increase margins if selling prices do not fall by the same amount. The extent to which firms pass on costs therefore partly determines whether retail prices go up or down. The price of a loaf of bread or a packet of coffee therefore reflects not only today’s costs, but also past cost trends and pricing decisions.

Past favourable price trends are still having an impact

The recent negative food price inflation is largely related to lower prices further up the supply chain (Figure 2). Last year, harvests in Europe were generally good, for example those of cereals and oilseeds. This put downward pressure on the prices of these agricultural products. In addition, world market prices for various food commodities, such as coffee, tea, cocoa and sugar, fell in particular compared with previous peaks (blue bar in Figure 2). These lower prices further up the supply chain are reflected with a delay in the prices we see in shops. One reason for this delay is that prices in the food supply chain are often fixed in contracts for extended periods. For example, price negotiations between supermarkets and suppliers take place only a few times a year. Changes in costs may therefore take some time to be reflected, as prices can only be adjusted once new agreements have been reached.

Higher energy prices are having a delayed impact

In the energy sector, too, there is a time lag between a price change and its impact on products. Energy is one of the factors that determines the costs of transport, food processing, fertiliser and packaging. As a result, the lower energy prices in 2025 continued to keep food price inflation in check up to and including July. Energy prices have now risen again, and the impact of this is gradually being reflected in food prices. The earlier price falls may therefore still be dampening inflation, while the current rise in energy costs may, on the other hand, push it up later on.

On average, food prices are lower than they were a year ago. That does not mean they are actually falling month on month, or that the fall will continue. In October 2026, for example, food prices rose by 0.4% compared with September 2026. This could be an early sign of a turnaround, but it may also be linked to temporary price fluctuations, for example due to special offers in the previous month. The previous cost reductions are still offsetting the rise in energy prices, but that effect may diminish. If higher energy costs are passed on further, food price inflation could rise again.

International food markets also continue to have a decisive influence on prices in the Netherlands. Extreme weather can, for example, make food commodities more expensive. What consumers ultimately pay depends on these cost trends and on the extent to which producers and supermarkets pass them on or absorb them within their profit margins. The current fall in prices is therefore no guarantee that groceries will remain cheaper in the long term.