The European food industry is heading into a renewed inflationary period, with the energy price shock from the recent Iran conflict likely to pass through to consumer food prices over the next two years.

Stagflation risk rising

The European Commission has warned that the long-term impact of the energy shock raises the chance of a stagflationary outcome. The Commission is expected to issue a weaker GDP forecast for 2026 at its May update, with growth likely around 1% versus 1.4% before the conflict.

Food inflation expectations for Q4 are rising as energy-intensive food manufacturers pass through higher costs. Research from Rabobank, using the Dutch market as a reference, estimates that a structural 50% increase in gas prices can lead to a 10% increase in food prices after 24 months. That would place 2027 food inflation in a 5 to 10% range, above current expectations.

The current period of energy price increases has already run for six weeks and is continuing. After the 2022 experience, the food industry is better positioned to absorb short-term shocks, but a sustained cost period makes some pass-through difficult to avoid.

Consumer picture

Consumer confidence across the eurozone had started to rebound at the beginning of 2026 on signs that inflation was easing. That trend has reversed. March annual headline inflation has been revised upwards to 2.6%, above the ECB’s 2% target, with most of the increase coming from rising energy costs.

The ECB is currently leaning towards leaving interest rates unchanged at its meeting later this month.

Implications for procurement

Higher food basket prices are likely to drive greater consumer interest in private label products, a pattern last seen during the 2023 to 2024 high-price environment. For procurement teams, the combination of rising input costs, shifting consumer preferences, and a weaker macro backdrop points to closer attention on energy-sensitive commodities and on the timing of forward cover.

Outlook

The food industry enters Q4 with more inflationary pressure than previously expected. Whether the Q4 picture deepens or stabilises will depend on how quickly the energy price shock eases, which in turn depends on the path of the Strait of Hormuz reopening and the durability of ceasefire arrangements.

Monthly macro analysis, now available on Vesper.