this is bbc news. we're back at the top of the hour with all the main headlines and news stories right after this programme. hello, everybody. a very warm welcome to talking business weekly with me, aaron heslehurst. let's go and take a look at what's on the show. the cost of living has been going through the roof, but can it possibly go up even more? and do prices ever really come down? we're going to be looking at how those prices get set and what goes on behind the scenes between growers, suppliers and the shops themselves. i'm going to be discussing all of that with this crack team. there they are. commodities expert conor laskahat can tell us where the markets think

prices of raw materials are heading. kai—markus mueller, who's the neuroscientist who gives us the psychology behind the way shops set their prices. and christel delberghe, she's the boss of eurocommerce, which represents the big retailers in some 27 countries across europe. also on the show, from the coffee field to your daily mug ofjoe, i've got antonio baravalle, the big boss of the coffee giant lavazza, to talk to us about pricing from bean to cup. wherever you'rejoining me from around the world, once again, a big hello and a very warm welcome to the show. blimey, how much is that? you know, that's the question millions of us are now asking

ourselves as we shop for everyday essentials. the cost of most of the things that we buy has gone up and up for pretty much everyone on the planet. this inflation is the reason central banks are ramping up their interest rates. workers are demanding higher wages and shops. they are the new battleground between retailers and their suppliers. the boss of the biggest retailer right here in the uk, it's tesco, told the bbc about how his company negotiates with suppliers about price. i think you need to talk to the individual suppliers to if you think that their price increases are hard to justify. we worked very hard at tesco to analyse the make up of our food products. an awful lot of our own label is bought on what's called an open book basis. in other words, we see what the ingredients are costing our suppliers and we have an agreed kind of profit margin for them on top

of their raw material costs and their operating costs. so we know exactly what's going on there. and, you know, we don't have the same access to the profit structures of our branded suppliers, but we do challenge them as hard as we possibly can. ok, so let's start with the raw ingredients. take wheat, for example. before the pandemic, about four years ago, a bushel of wheat was trading on the market at $4.70. that spiked when russia invaded ukraine one year ago. the same amount of wheat went up to almost 13 bucks a bushel. but at the end of march this year, it was sitting at around $7, much less than the peak, but still 47% higher than before the pandemic. it's a similar story with cooking oil. before the pandemic, a pound of soybean oil was trading at around $0.29. after the war began, that shot up to nearly $0.76, so more than doubled. and now it's settled somewhere in between at around $0.55 a pound. still, 90% more than

before the pandemic. much of those costs follow the same pattern as energy prices. oil prices — they were coming down, but they shot up again in the last week or so after the oil—producing cartel, 0pec, along with its partner russia announced that they would cut just how much oil they sell, causing prices to head higher once again. so, where are the prices of these essentials heading right now? well, to find out, i caught up with one expert whose predictions over the last few years have been pretty accurate, to say the least. it's always a pleasure having you on the show. you and i have spoken over, over many years about the direction of commodities. and i'm going to be frank here. you've always been ahead of the curve. so, what, if anything, can the commodity markets tell us right now about the direction of prices going forward? so, commodity prices have actually stabilised a bit. they had peaked out back

in the summer of 2022 last year, just after the ukrainian invasion. and now they've fallen quite a bit since then. but we're not quite out of the woods because oil prices are picking up again. there are a lot of suppliers amongst 0pec who are looking to cut back production. china has come back into the world market and they're consuming more after their post covid lockdowns. so there are some supply demand tightness emerging in certain commodities, which means that, yes, prices are lower than they were a year ago, if you like, but they're not drastically coming off either. and you and i right now are here in the uk and i'm wondering, are there any special factors here in the uk or are we seeing prices just consistently behaving the same as other countries? no, i think in the uk we've seen food inflation being a bit more of a factor than our peers. and i think there's there

are a couple of reasons for that. the first one i would say is brexit. the brexit has led to quite a few disruptions on the border side of things. so flows of imported goods from europe, which is our biggest trading partner, has not been smooth and frictionless. so there's definitely been a lot of delays and cost increases on that side of things. and the second impact slightly related to brexit, but also perhaps more due to post—covid, it is the lack of labour. you know, we have seen the so—called great resignations phenomenon where a lot of people are no longer in the workforce. but again, all too perhaps due to brexit, we've seen quite a few temporary workers leave the uk to go back to the european union. you know, we were relying on them for processing the foods or at the farm, farm level. and i think the lack of labor or as a result the higher cost of labour means again that the cost of food by the time it gets to the supermarket has become

elevated so much more than it normally would have been. and, kona, i've done it before, i'm going to do it again. i want to put you on the spot. in a year's time, what are price going to be doing? that's tricky, because this time last year you asked me the same question. and thankfully, i was right. i'd suggested that price is going to go quite a bit higher. and yes, they did. a couple of factors. number one, the world economy is under a bit of stress. so demand is slowing, i would say, across the board, mostly because of the cost of living crisis. inflation is just very high, which makes people feel poorer and means the disposable income is less. secondly, interest rates are going up, which again has the same impact of making you feel less wealthy if you like. so that might impact demand to a certain extent. if demand slows, what happens on the supply side? and that is where the big question is. i think if you were to ask me a year on from now what's going to happen to russia and ukraine, unfortunately, ifeel that the the war will continue, which means that will continue

to remain a supply side block, which remains mired in uncertainty. so whether it's the grains corridor or exports flows, that can continue to be fraught with risk. and the final thing is the other producing regions, you know, we are seeing some sort of climate change, unfortunately, which does create havoc across the world, particularly tropical countries. so whether it's floods or droughts, inevitably you're going to see some of that in some key producing region. and i think that, again, may affect the supply side. so bottom line, unfortunately, i think prices are not likely to get back to levels we saw pre 2019, the pre—covid levels because the whole world has structurally changed. costs are higher, inflation is here. the cost of processing and shipping things are high. so prices may come off a little bit, but we're not going to go back to levels we saw five years ago, for example.

so, kona, i'mjust wondering, do do we as consumers who, let's be frank, have been used to pretty cheap food for some years, do we have to just now get used to these higher prices? i think the whole 2000 and early 2010s where we used to enjoy really good prices for pretty much everything, we enjoyed low inflation for the longest time. those days are gone. we're now going back to the 70s and eighties, not skyrocketing. inflation will come down, but we're not going to see the rock bottom prices that we saw back in the early 20 tens. i think those days are gone. unfortunately, interest rates are going to be have to stay high in order to tackle inflation. but it also means that we're going to have to think twice before we go for our expensive food habits. well, on that point, kona lasker haque, my friend. a real pleasure having you on the show, as always.

that's the start of how prices get set. but how much does psychology play in the price that we pay for our shopping? well, my next guest has literally written the book on this. it's called the invisible game the secrets and the science of winning minds and winning deals. kai—markus mueller, a real pleasure having you on this show. and kai, let's start with this. what are some of the tips and tricks that retailers use? well, there is a wealth of them in consumer psychology. but i'll tell you a few of them. a very, very, very strong component is, for example, the default effect. so, for example, if you have a subscription, it renews by default and we have trouble thinking about the renewal, wejust let it go. then there are things like read signs for discounts. people have learned these things over and over that read signs give you pleasure.

people believe that they get a good deal despite the fact that they are actually playing a game that is set by the company that sells these products. and kai, i'm wondering, do you think, you know, our consumers more likely to be accepting of rising pricesjust because of all the information about inflation that we we're constantly hearing about? yes, absolutely. 0ur minds adapt very quickly to new situations. and a very important concept in that respect is anchoring. so if i am getting used to high numbers, also my price perception goes up and i am more much more willing to accept high prices. however, one problem from the corporate perspective is that if you train your consumers to become bargain hunters, it's very hard to retrain them to accept high prices. well, kai, economics would suggest that we we would always choose the best value. but that's that's not always the case.

i'm wondering, do consumers find reassurance in higher prices? indeed. that is something that scientists call the price quality heuristic. and that means that not only the high quality influences the price, which is how we usually think about the world. no, the price also influences the quality perception, and that has been shown in a number of incredibly interesting studies. for instance, it's been shown that the same wine wanted the same wine tastes better if it's designed to be expensive. also, painkillers. the placebo effect of a painkiller is much stronger if you label that painkiller as an expensive painkiller as opposed to a cheap painkiller.

and kai, what do you think about companies using shrinkflation? you know, keeping prices the same, but but making the product smaller? i mean, is that effective? shrinkflation is effective. depends very much on the perceptual threshold. so for example, in weight, if i compare to weights, i need at least two grams of difference for 100 by 100 grams to perceive that. difference at all. grams to perceive that difference at all. now, over time, that becomes more so i maybe forget that last week, you know, that carton of milk or that little piece of tea or so was slightly heavier than this week. so companies understand what the perceptual threshold for the different units is. they have good chances to make

shrinkflation successful. kai, are retailers, are they nervous about raising prices? oh, yes. that is a big issue. everybody who sells is very, very nervous about prices. indeed, i ran brain scan studies where i could show that the consumer willingness to pay is in some cases, significantly higher than the value perception of the person who sells. that means there is a strong hurdle and and lots of pain on the seller side, which is completely unnecessary. kai—markus mueller, an absolute pleasure having you on the show. thanks so much for your time and i'll talk to you soon. thank you for having me. well, you know, in the end, it's the price in the shops that customers really care about. so what kind of pressure are they under to keep the costs low and how do they negotiate with their suppliers? well, to find out, i've been

speaking with the director general of eurocommerce. that's the organisation that represents retailers and wholesalers in 27 european countries. christel delberghe, a real pleasure having you on the show. and christel, can we start with this? because as we've been seeing the costs of raw materials heading higher, how much pressure are your members facing to to keep the prices down? well, the pressure on retail is immense. today, inflation in europe is about 10% and inflation in groceries is 19%. and the pressure is on on retail is exerted via the higher cost of the goods for resale, the higher cost of operation. and they're facing consumers hit by a severe cost of cost of living crisis for them in the retail. for them in the retail, the retailers have been able

to cushion consumers from the worst of the inflation. retailers have been absorbing part of the of the higher cost increases. and they've been doing this via promotions by making a huge investment in pricing to ensure that consumers to ensure that consumers can get good deals. and christel, i'm wondering, what kind of conversations are the retailers having with the suppliers? well, the conversations are are pretty tough and the situation is very difficult at the moment. retailers negotiate on behalf of consumers for the best the best deal and the best assortments. and what we have seen is a concerning trend by the manufacturers to seek, in particularfrom the large, large global manufacturers, large global brands who have been seeking to push up price increases beyond the cost increases.

and christel, i'm just wondering, are your members, the retailers, are they reporting the changes, any big changes in consumer behaviour due to the cost of living crisis? yes, indeed, consumer behaviour has changed quite significantly and it has changed across the board. they're favouring long shelf life products like rice and pasta, they're looking out for promotions and they stock up when buying and promotions. they're looking for cheaper brands, some more budget line products, more private labels. they're investing a lot to help consumers and to cushion them from the worst of the crisis and and inflation, the high the high prices. and, christel, what are your retailers saying about the outlook for prices? i mean, are more rises to come, do you think? well, the situation is still very uncertain.

we expect prices to go down in the course of the year as energy prices are are going down as the the commodity prices are going down. in the agri food chain, there is a lag. and so prices should stabilise more likely towards the end of the second half of the year. but in the meantime, in the meantime, our prices are still are still keeping up. well, on that point, christel delberghe, a real pleasure having you on the show. thanks so much for your time. you know, on today's programme, we've been looking at how companies are setting prices as the costs go up and up and customers are squeezed. coffee, it's a treat, but the price of coffee beans has been on the rise like so many other commodities. four years ago, before the pandemic, a pound of arabica beans was trading on the market at around $0.94.

one year ago, after the invasion of ukraine, thatjumped to $2.33 a pound. and in march this year it was trading at around 1.68. so somewhere between the two, but it's still 80% more than pre—covid price. add to that the increasing cost of energy, and it's a challenge, a big challenge for big coffee companies to think about how they pass on the costs to their customers who are thirsty for their morning cup of go—gojuice. so i've been catching up with the big boss of lavazza, the iconic italian coffee giant antonio varavella. a real pleasure having you on the show. and antonio, let's start with this, because this week's show, we've been talking about how difficult it is for companies to to set prices. and we've seen coffee bean prices go up quite a lot. so i'm just wondering, antonio, how have you dealt with that when it comes to setting your prices? i think that all the industry faces very, very huge cost increase. and also remembering that a company like us is buying in dollars at the new york stock market. so the ratio between dollar and euro is so important.

so we only partially pass the cost increase to consumers. so i would say that at least 50% was absorbed by the company and 50% was given back to to the industry. so to the market. but again, this is up to the fact that we can do it because we are a family company. and antonio, you negotiate with with all the big retailers around the world. i'm wondering how difficult have those negotiations been given these surging prices? yeah, you know, i'm you know, i totally understand also their position because if i compare what is happening to retailer in this moment know cause like energy that in the past were less than 1%. now we are to five, six,

7% that at the end they buy and very sell the products to consumers. so i would say that it's very, very tough discussion for sure. and we got many example in our europe of tough discussion between trade and and and, you know, fast moving goods company. i think that we always have been very reasonable in the last three orfour years in the relationship with the trade, knowing that there is the right limit and right the balance sheet for them, for us, and the right threshold where the two faces can that there is the right limit and the right balance sheet for them, for us, and the right threshold where the two faces can start talking to each other. so i would say it's a very tough discussion, but probably thanks to our past years history and the credibility also that we got on the market, we have always been able at the end to find the right solution with them, but not an easyjob. but these retailers, they often have their own brands.

i'm just wondering, is that a big plus for them when negotiating? you know, in theory, you should have a chinese wall between your private label business and all the rest in theory. but, you know, from one side. but, you know, from one side, it can also help them to understand the reason why of price increase, because they have to buy raw materials, we have to buy coffee. they know very well that normally to give you the right dimension of a timing. when i order coffee today, it takes four months before it arrives in italy and the one month, two months before that we transform it and we distribute. so even if the price tomorrow morning is going to go down 50%, we go to six months of tailor that doesn't allow you to

change anything. so i would say if a trade with a private label do our business inside the coffee category, it also helps them to understand what does it mean from really a supply chain point of view. then everyone is trying to do his own game, but that is another issue. and antonio, let me ask you this, because some coffee producers, rather than risk putting off consumers by increasing their prices, what they've been doing is changing the sizes of their packaging. of course, it's become known as shrinkflation. is that something lavazza has entertained already? i will be very strong. that is a joke because we have too much respect for our consumer. is not the changing a visible price and giving them less products that you know you do the good for your consumer. as i told you, we are smaller.

so we decided to take part of a cost increase in raw materials because we wanted to we wanted to increase penetration. and in fact, the last year we grew also 5% in volume. that is very tough in here, like this one, doing something like that, we consider not the serious approach towards the consumer. so we have too much respect for them. 0k. let me end on this and let's spin a yearahead. antonio, prices higher or lower than today? i still think that we didn't see yet a small piece of inflation, that we will see it on prices, let's say, before the summer, because all all companies will rise the prices in october, november, but have to argue with a trade to discuss. normally this is a six month time, so i'm not going to say to the cost before covid,

but a more reasonable cost. so we are going in that direction. but i think that there will be still a six month firm where we could have some small surprises yet on inflation. well, on that note, antonio varavella, the big boss of lavazza, a real pleasure having you on my show, my friend. thanks for your time and we'll check in with you soon. thank you. well, that's it for this week's show. i hope you enjoyed it. don't forget, you can keep up with the latest on our global economy on the bbc website or the smartphone app. you can also follow me on twitter, tweet me, i'll tweet you back. thanks for watching, i'll see you soon, bye—bye.

hello there. good friday was a pretty decent one across the country. plenty of sunshine around. there was still a bit of a chill in the air, but i think as we move deeper into the easter weekend, it will start to warm up as we pick up the air source from the south. it is going to stay dry, plenty of sunshine, then it is all change for the bank holiday easter monday. this area of low pressure begins to spread across the country. it is high pressure dominating the scene to start the easter weekend. lots of dry weather to begin with. 0n the chilly side mind you, but temperatures will rise fairly quickly. cloud across eastern scotland and easstern england will tend to break up and burn back to the coast, so we should have plenty of sunny spells into the afternoon with a little bit of fair weather, cloud bubbling up here and there. a bit more of a breeze, particularly towards the south and west. temperatures notch up in that range of 13, maybe up to 16 degrees. as we head through saturday night, it stays fine and dry,

lengthy clear skies, a bit more of a breeze, even more i think, through saturday night. variable cloud, so i think we should be frost free, to start sunday. another fairly cool one with temperatures between 2—6 c. for easter sunday, looking at this area of low pressure edging further eastwards. it will be affecting northern ireland later in the day. more isobars, so a windy day to come, particularly towards the west. that said, another fine one with plenty of sunshine around. air source coming the south. so it should be a little bit warmer, up to 17 celsius, and generally in the mid—teens for many, but it will be turning wetter and windierfor northern ireland and then that rain pushing into the rest of britain late on sunday. through sunday night and into the early part of monday, that band of wind and rain will spread across the uk. it should have cleared by the time we head into easter monday morning. but we have a day of sunshine and showers. some of the showers will be heavy

and perhaps thundery. it will feel cooler as well. generally, we are looking at 10—13 c. so, noticeably cooler. for this upcoming week it will remain pretty unsettled, with low pressure always nearby. we could see a risk of gales around the middle part of the week. you can see the unsettled theme if i show you the icons, with temperatures just about making double figures. factor in the wind and rain, and it'll feel cooler.

live from washington. this is bbc news israel mobilizes police and army reserves after a deadly attack in tel aviv , the latest violence in a week of escalating conflict with the palestinians. russian state media says the american journalist, evan gershkovich, has been formally charged with espionage. the us has yet to confirm the reports. and us vice president kamala harris