The crisis is here, bringing worries about the economy, jobs and the future with it. It has also brought an end to price inflation. Last year, people throughout Europe were still suffering from inflation rates, and they developed strategies to deal with them. This also has effects on consumption.
Darker forecasts came from Joaquín Almunia, Commissioner for Economic and Monetary Affairs of the European Union, in his recent speech in Brussels. He said that Europe was currently fighting the “worst recession since the Second World War” and that 10% of workers would soon be unemployed, with the majority of EU states in massive debt. A positive side of the crisis is an end to soaring prices. The Commission expects inflation of only 0.5% in the current year, which is negligible compared to previous rates.
This has given consumers some breathing space, as the latest “Challenges of Europe” survey shows. This survey is carried out annually by GfK Marktforschung for the GfK Association (GfK Nürnberg e.V.). After a rise of 11 points in the last year, fear of rising prices fell considerably by 7 places to number 3 in the international ranking of worries. Today, significantly fewer Europeans than a year ago think that politicians should act urgently regarding purchasing power and inflation.
In the fast-moving consumer goods (FMCG) category, the inflation troubling consumers in many countries came to an end in August 2008. This was particularly noticeable for consumers hitting the shops in Germany.
Recently this has changed. Inflation between March 2008 and February 2009 was 4.5% on average, and in spring and summer it climbed to 6%. Inflation in France was similarly high at 4.8%. In other Western European countries, such as the Netherlands, Spain and Italy, the rate moved at around 5%. In Russia, however, consumers are still battling with rising prices. It is therefore not surprising that here, at 31%, a very high number of respondents worry about inflation, with the topic taking 1st place in the national ranking.
Throughout Europe, sales in the FMCG sector were largely stable in the months up to February 2009, but the consumer mood could be better in certain areas. In European Union countries, the Consumer Confidence Indicator has been falling since 2007, but at least the downward trend has now slowed.
Consumers learned long ago how to circumvent price increases. The strategies vary according to economic situation. To sum up, in all 8 countries surveyed people are buying but they are buying differently.
Western Europeans opt for “downtrading”, choosing the cheaper variants of products. These are the findings of international survey “Prices and the economy in Europe”, based on consumer data from the Europanel. This trend is most prominent in the UK, where, over the last year, consumers have been buying 4% more cheaply than one year previously – this reaction had the result that prices paid for food have increased by only 6%, as opposed to the relatively high inflation rate for food of almost 10%. Part two of the strategy in the UK is shop-hopping. British consumers have become less loyal, visiting on average 3.2 different shops per month in search of bargains. Overall, Western Europeans like diversity. The average German has 4.1 preferred retailers but seldom opts for cheaper alternatives within them. The downtrading figure is 0.5% in Germany.
Eastern Germany is slightly different, as here consumers are spending significantly more on FMCGs than a year ago. In Russia, the uptrading factor rose by 5.5% from the previous year: more buyers, more expensive goods, fuller bags, and an inflation rate for food of an almost record leading rate of 14.1%. Last year, Russia still benefitted from a high oil price, but this is currently falling and the value of the ruble is going with it. Therefore, sales growth in the FMCG segment is in future more likely to be linked to high prices rather than consumer propensity to buy.
The rest of Europe can look forward to relatively low inflation, but people are concerned by a quite different problem: their country’s economic stability. While this factor did not enter the top 10 in last year’s “Challenges” evaluation, it now takes 2nd place behind unemployment, and it will certainly be the issue of jobs and the economy that shapes consumer mood this year. “No one is immune to the consequence of the crisis,” said Almunia, Commissioner for Economic and Monetary Affairs, in Brussels. The current price stability is at least a small reason to be cheerful.
Data source: the GfK Association (GfK-Nürnberg e.V.) (“Challenges of Europe” 2009), Europanel (cooperation between GfK and TNS, “Prices and the economy in Europe” survey April 2009) and Eurostat (Inflation)