Transitory or Structural for HIGH prices of Coffee?

Is Inflation Transitory or Structural from G Coffee, Company in Wroclaw Poland fresh coffee roaster
Inflation in Coffee

Transitory or Structural?

What are the Contributing Factors

Prices for many products AND services have been going up at a noticeable rate since the spring (of 2021).  If you’re thinking that it’s just because people are greedy – think again.  There are global factors in play that are raising the prices of everything, including our Coffee Beans.

There’s a strong chance that you’re familiar with macroeconomics, but in case you’re not – the phenomenon we’re experiencing is called Inflation and it is defined as: the decrease in purchasing power of money.

Except for a handful of outliers, Inflation is happening around the world and the biggest question being kicked around between Central Bankers is whether it is Transitory (temporary) or Structural (longer term). 

Who are these Central Bankers? You may ask.

They aren’t a secret group led by the Illuminati, the Masons, David Hassehoff, or evil aliens.

No, these are seasoned economists that have been trusted by elected officials to make sure that the money supply of a country (or a Union like Europe) is balanced and stable.  They do this by deciding how much money should be in supply and how much interest should be paid to those who lend money to governments through bonds. 

To curb the rise of inflation and stabilize the economies under their influence, Central Bankers are currently debating as to when – and by how much – they should be raising the interest rates on government bonds. Government bonds are usually considered the safest investment (with the lowest return) and their interest rates are used as the benchmarks by most private banks and other institutions. 

They believe that by making the cost of borrowing more expensive (aka raising interest rates), they will cool down any economic overheating (which is potentially causing inflation).

When interest rate decisions are made, Central Banks use a number of national economic indicators; the unemployment rate, housing sales, economic productivity, INFLATION, and a few others.

Lately, the indicator that gets the most attention is Inflation.

Why am I talking about this here?

You might have noticed that the price of Gas, Groceries, and even Garbage Disposal services have gone up. If you’ve been buying our coffee regularly, you must have noticed a rise in our prices as well.

For those of you who’ve been on board with G Coffee Company longer than six months, you know that we changed our pricing structure in the summer of 2021. Originally we had static prices and they were amongst the highest in Wroclaw. The change was made to be more competitive and the lack of overhead (i.e. no cafe & no farmers market) justified this reduction as well.

On a side note; I would love to never charge money for anything because I feel more rewarded by smiles than money – unfortunately the bank, my landlord, the grocery store (WroFood), my kids’ schools, Social Security, and the Tax Office have a different opinion.

Our dynamic pricing is based on a proportional margin tacked onto to our cost of green coffee, transportation, roasting, and packaging.

Back to a wider view of the World.

Although there have always been price fluctuations throughout the world’s markets, we haven’t seen inflation rises like this since the 1970’s. You could say it’s because of the:

  • Abrupt rebound in demand for goods & services after the COVID-19 lockdowns.
  • Anticipated changes in Interest Rates.
  • Global Warming, government subsidies.
  • Or a bunch of other things…

In fact it’s all of the above.

We could spend days, weeks, even years exploring the causes of inflation.

Rather than that, we’ll look at a few (definitely not all) of the factors that contribute to the final price of your coffee and by how much they’ve risen since this summer. These are what you’re seeing on the chart below:

current rise in prices based on inflation for coffee related products by G Coffee Company in Wroclaw Poland blog

Each one of these factors have a direct impact on the prices we pay for green beans:

Commercial Coffee: although our coffee is of a higher grade, all coffees are priced based on the current price of Commercial Coffee, which has increased by over 42% since this summer.

Oil: from fueling for transportation and machinery, to the petroleum based products used in packaging – a rise by almost 7% affects costs along the entire production cycle.

US Dollar / Polish Zloty exchange rate: Coffee is predominantly priced and sold in Dollars by farmers and collectives. Once it arrives in Europe, that price gets translated into the local currency, and if you hadn’t noticed, the US Dollar has risen by over 7% since this summer.

Average G Coffee Prices: the rise is exactly 10.88%. It’s correlated to the three above and I’m sure you’d agree that an 11% rise is much better than the 42% increase seen in Commercial Coffee!

Other things that I can’t quantify on the chart are global warming and its effect on crop yields, a recent steep surge in demand for seaborn cargo transportation, political instability, and the list goes on…

G Coffee Company price rises per kg for freshly roasted coffee in Wroclaw Poland

Above you’re looking at how our coffee prices have increased since June, 2021 – ranging between 3% to 34%. On the right hand side of the chart, the second half, is a very rough prediction of where the prices could be within the next four months. These estimations raise the prices by as high as almost 70%.

How can we dampen the effects of Inflation?

Because Coffee is part of your daily routine, and just like everything else; it’s being affected by the outside world. The last two years have brought issues from around the planet to our front door and now it’s happened to your cup of coffee.

You probably notice a different tone in this text, I’d say that this is because I’m farther and farther away from social contact with others. Less familiarity breeds a more formal tone – or maybe its because I’ve been listening to the Economist and the Wall Street Journal podcasts in solitude while driving around the city delivering delightfully fresh roasted coffee.

Whatever the case may be, for the short term the prices can stabilize, go down, or move further up.  But over the medium to long term there’s a strong chance that the trend continues toward the upside.

This is our proposal. 

I’ve wanted to offer a subscription service for a long time. It helps the company say strong with consistent & predictable business, and helps our customers regularly receive high quality fresh roasted coffee.

I can’t offer you a blockbuster cheap deal because I’ve got bills to pay too – but I can offer you the option of consistent prices for the next 3, 6, and 12 months.  Look at it this way; you need coffee and you buy it on a regular basis.  

Why not lock in these prices now and simultaneously cross one thing off your grocery list for the next YEAR!?

So here’s how the G Coffee Company subscription will work:

  1. Pick the coffee and the number of months you want.
  2. Pay for it today and have it delivered when you choose without having to think about it again.
It’s that simple.

Next month we’ll more than likely see another change in prices.  By having a subscription, you won’t have to deal with any price fluctuations OR any interruptions of coffee.