Europe’s economy is in a strange position, and a chart of beer prices can offer some insight into what’s going on.
Even though the eurozone is showing some very positive signs of life in terms of economic growth and consumer spending right now, the currency union is also recording deflation, with prices falling overall. It’s a very rare occurrence.
Those prices have been driven down particularly by the plunge in oil prices that began towards the end of last year — but prices weren’t rising very much in Europe even before that.
But oil isn’t the only dark-coloured and highly-valued liquid with a falling price.
Heineken, Carlsberg, AB Inbev and private label beer prices are falling (on a price/mix basis, which means they’re falling for the companies making them, after accounting for things like special offers and credit deals with other firms).
Here’s how that looks:
That doesn’t mean deflation is necessarily settling in: Big agricultural producers like beer companies are some of the big beneficiaries from lower oil prices, since brewing is a very energy-intensive industry. Prices could start picking up again once the temporary effect of cheaper oil wears off.
It might sound like a good thing that beer prices are falling — but not according to Taimur Baig at Detusche Bank, who had this to say in a note last week:
In recent decades industrial country central banks have attached their credibility tightly around inflation objectives. Also, with financial markets being considerably more open today than a century ago, with financial-real economy linkages considerably stronger, indebtedness and asset price booms and busts have become major drivers of economic fluctuations. The costs of deflation, therefore, are greater than ever.
But if that’s the case, Germany looks like it could be a silver lining:
Prices are rising across Germany, with the country clearly pulling out of the deflationary trend seen in the years after the euro crisis — Germany’s economy is growing at a modest pace and full employment is approaching, which would usually kick up some inflationary pressure. Is beer a sign of things to come?