The phenomenon of “chipflation”, which refers to the faster rise in prices of cheaper brands compared to more expensive ones during periods of inflation, has gained increasing attention worldwide. This trend has been noted in several countries, including Italy, the USA, Australia, Germany, Spain, and France. Now, it seems that chipflation has also taken hold in Serbia.
The National Bank of Serbia (NBS) has confirmed that chipflation is present in the country, particularly within the food and beverage sector. From 2022 to 2024, cheaper brands saw a cumulative price increase that was five percentage points higher than that of more expensive brands. The NBS analyzed 58 products, including dairy, meat, confectionery, coffee, and soft drinks. Fresh meat, fruits, and vegetables were excluded from the analysis due to methodological reasons.
Overall, prices across these 58 products rose by an average of 37.7%, which aligns with the cumulative inflation rates in the processed food and soft drinks sectors as reported by the Republic Institute of Statistics (RZS). However, when looking at the price increases in more detail, cheaper brands saw a 40% rise, with two-thirds (67%) of this increase occurring in 2022 alone. In contrast, more expensive brands had a cumulative price increase of around 35%, with over half of that growth also occurring in 2022.
By the end of 2022, the prices of all 58 products had risen by an average of 23.4% compared to January of the same year, with the most significant increases coming from cheaper brands, which saw a 27.4% rise. More expensive brands, on the other hand, saw an average price increase of 18.4%.
During the “Inflation Report” conference, NBS representatives discussed the phenomenon of chipflation, highlighting the fact that in the case of dairy and meat products, most of the price growth occurred in 2022. Prices have since stabilized, with no significant fluctuations observed in the second half of 2023. Coffee and soft drinks also followed this trend, although their price growth continued into 2024, partly due to the record-high prices of coffee on the global market.
An exception to this trend has been observed in the confectionery sector, particularly with chocolate, where the prices of more expensive brands have increased in recent months. Overall, the growth of food prices slowed down in 2024, with the average increase around 4%, which is lower than the overall inflation rate.
The NBS expects inflation to continue slowing this year, aiming to approach the central target value of 3±1.5% by the end of 2024.
Causes of Chipflation
Chipflation tends to occur during periods of high inflationary pressure, which were particularly strong in the second half of 2022 and the beginning of 2023. Several factors contribute to this phenomenon. One key reason is the low elasticity of demand for food, particularly for cheaper brands. When prices rise, consumers often substitute more expensive products with cheaper alternatives, leading to an increase in demand for the less expensive brands and subsequently driving up their prices.
Due to inflation, consumers are more likely to purchase cheaper brands, which boosts demand for those products. This in turn enables manufacturers and retailers to pass on a larger portion of the increased costs to consumers while still maintaining sales volumes, especially if inflation is expected to persist.
Additionally, the weaker bargaining power of consumers in these circumstances can be further exploited when the market structure is less competitive. This allows producers and retailers to pass on more of the cost increases to retail prices.
The NBS has warned about this issue, emphasizing that an imperfect market structure can lead to inflationary pressures being passed on to consumers in a way that does not align with actual increases in production costs.
Other types of inflation
In response to rising costs, retailers and manufacturers often seek ways to avoid directly increasing prices, as this could provoke resistance from consumers. One such method is “shrinkflation,” where consumers get less of a product for the same or higher price, such as smaller packaging.
Another phenomenon currently in the market is “greedflation,” where retailers use inflation as an excuse to increase prices more than necessary. This trend first emerged during the COVID-19 pandemic when many businesses raised prices to artificially high levels under the pretext of crisis-related supply chain disruptions.
In light of high retail prices, the consumer protection association “Efektiva” has called for a boycott of retail chains. The third campaign, running from February 24 to March 2, targets the Delhaize group, which owns “Maxi” and “Shop&Go” stores. This follows previous boycotts aimed at addressing the rising cost of living.
