Olive oil inflation is really regressive

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From mainFT:

Prices for olive oil are surging further in to record-breaking territory after an extended period of unusually dry weather in southern Europe damaged crops.

European prices first moved above €4 per kilogramme in September but have now shot up to more than €7 per kg owing to soaring temperatures and a lack of rainfall in Spain, the world’s largest producer, as well as in Italy and Portugal.

The piece’s co-author, former Alphavillain George Steer, made the mistake of mentioning this piece to us yesterday, his innocent query of whether the UK tracks olive oil prices spurring us to spend some time down a rabbit hole.

Naturally the article focuses on the fascinating global picture. This article will not.

As mentioned in our piece about Beyoncé last week, the UK’s Office for National Statistics is perhaps inexplicably opaque about the data it gathers. Happily, sometimes it is fairly transparent, much like (filtered) olive oil.

The ONS tracks the price of a 500ml bottle of olive oil as part of its standard basket of goods used to measure inflation. It represents about 1 point of the 950ish point CPIH basket.

In its latest consumer price index report, it found the average cost of such oil was £6.16:

It’s a big pickup: olive oil price were 47 per cent higher than a year earlier, as part of a substantial rise that kicked off around the time Russia invaded Ukraine — knocking out the world’s biggest supplier of sunflower oil and generally mussing up the global market for vegetable oils. Twelve-month CPIH inflation in food and non-alcoholic beverages over the same period was 18.4 per cent.

Interestingly, this is one of the areas where the ONS fully divulges the different price quotes its agents observed for a product.

In May, the ONS observed prices for 244 500ml bottles of olive oil, item code 211408, across 66 different shop types. The ONS uses a combination of physical observation of data — a 2018 document says:

A third party company, Kantar TNS, are currently contracted to collect approximately 100,000 prices for around 580 items from a variety of retail stores in around 150 locations across the UK each month.

— and data scraped from the web.

Olive oil’s a complex product category. Eight different classifications exist:

• extra-virgin olive oil,

• virgin olive oil,

• virgin lampante olive oil,

• refined olive oil,

• olive oil composed of refined olive oil and virgin olive oils,

• olive pomace oil,

• crude olive-pomace oil,

• refined olive pomace oil.

Most readers will be familiar at least with the basic distinction between regular olive oil (for cooking) and extra-virgin olive oil (for drizzling/dressing). It is not clear from the ONS how fussy they are about the quality of olive oil observed.

Regardless, here’s the distribution of prices that they found in May 2023, versus January 2022. We’ve simplified this to include instances where prices has recovered from a sale or bore other comments as being “standard price”. Comparable products mean a new product came on sale that was “similar to the previous product”. Sale price means “sale price or special offer”:

The shift in the overall distribution is obviously the key trend:

— January 2022’s average price is only moderately above May 2023’s lowest price
— The average price rose 65.1 per cent between the two periods

The moves at either end are also interesting:

— the price of the cheapest olive oil the ONS found rose from £1.89 to £2.75, which is inflation of 45.5pc.
— the most expensive rose from £8.35 to £10.99, inflation of 31.6 per cent

It’s worth caveating those figures slightly, by noting that January 2022 had a mild outlier at the most expensive end, while May 2023 has one at the bottom. We’d propose looking at the “cluster” of price near each extremity as a better indicator of the widely-available extremes — we’re defining this is the lowest/highest price that was observed more than once.

— Inflation from the lowest January 2022 cluster to that lower-end May 2023 cluster in May was 78.9 per cent
— at the highest end it was it was 36.3 per cent

This first chart here shows how prices have changed at either end. It’s worth noting there were severe stock issues late last year, after which point prices sprung up in January 2023:

And here are those figures as a percentage change:

There was some discourse and some data last year about inflation being felt more strongly by people with the least spending power, because they don’t have the option of switching to a cheaper product. The ONS’s conclusion at the time was no.

Olive oil is a definite exception. Something to mull on as you drizzle over that caprese salad.