An easing in overall inflation is not being mirrored in food prices, and experts say severe weather and geopolitical disruptions will continue to cause pain for Canadians at the grocery store. Statistics Canada’s latest Consumer Price Index report for June released Tuesday showed that while the overall annual inflation rate cooled to 2.8 per cent last month, prices for food bought at the grocery stores continued to accelerate at a pace of 9.1 per cent year-over-year.
Sylvain Charlebois, the director of the Agri-Food Analytics Lab at Dalhousie University, says the gap between general inflation and rising prices for food in particular is a source of frustration for shoppers.“That’s the sticker shock factor,” he tells Global News. “That gap really makes people mad because they’re looking at the economy, things are getting back to normal, but not at the grocery store.”
StatCan said the biggest contributors to food inflation in June were meat (up 6.9 per cent), bakery products (up 12.9 per cent) and dairy products (up 7.4 per cent). StatCan also pointed to a 30 per cent month-to-month jump in prices for grapes as pushing the price of fresh fruit up 10.7 per cent annually.
Charlebois says that extreme weather events are a primary driver of higher prices for fresh foods right now.Droughts in the west of Canada and the U.S. are affecting cow herds and driving prices higher for beef, he says. It’s an issue he expects will continue to put pressure on fresh meat prices for months to come.
While one-off weather events can be blamed for spikes in food prices month-to-month, Charlebois says that each disruption is part of a wider trend. Over the past 15 years of analyzing food prices, he says that the impacts of climate change have been a “constant” factor in the prices of fresh foods.
“Climate change is costing Canadians every single day, whether you like it or not,” he says.
Persistent food inflation in Canada is set to face more challenges in the months ahead as Russia this week allowed the collapse of the Black Sea grain deal which enabled the peaceful flow of wheat products from Ukraine and Russia to international markets.While Canada is a major exporter of wheat in its own right, Charlebois explains that commodity prices like grains are set internationally, so an impact to supply elsewhere in the world can drive up prices globally.
Matias Margulis, associate professor of food systems at the University of British Columbia, told Global News this week that the collapse of the trade deal is “very concerning for food security globally” and could drive food prices higher in North America.
The final impact on prices depends, however, on how markets react to the news and how other countries set up supply chains in an attempt to maintain exports from Ukraine in light of the deal’s collapse, Margulis said. While food inflation has been a thorn in the side of consumers in Canada and the U.S. for months, the issue is particularly acute in developing nations, he added.
Charlebois says that, to date, futures prices on grains have not risen as much as he would have expected in response to the end of the Black Sea grain deal. Futures prices set market expectations for how much commodities will trade for in the months ahead; back in the spring, these indicators foretold the rise in beef prices Canadians are facing today, Charlebois notes.
That could be because markets already had the end of the grain deal priced in, or because observers expect talks to restore the deal will succeed and result in only minimal disruption to exports, he says.
In its annual food price forecast in December, Agri-Food Analytics called for annual increases of five to seven per cent at the grocery store in 2023. Despite food inflation’s stickiness through the first half of the year, Charlebois tells Global News that he’s sticking by that call, with expectations of some relief to come this year.
He notes that month-to-month grocery price inflation declined 0.1 percentage points in June. While that doesn’t seem like much, even a slight decline is much preferred to the 0.9 percentage point increase seen in May, he says.
Charlebois cautions, however, that the impact of new clean fuel regulations and the carbon tax coming into effect on the East Coast starting July 1, could reverse some of the easing seen last month.
“I actually do think that June numbers are promising for the future. July could be a setback,” he says.
The Bank of Canada has said that in order for inflation to cool all the way back down to its two per cent target, businesses will need to “normalize” their pricing decisions, which in recent months have seen them pass high costs incurred in their supply chains onto consumers.
Finance Minister Chrystia Freeland on Tuesday cited the federal “grocery rebate,” which rolled out earlier this month, as one tool that Ottawa has used to offer relief to struggling consumers and put the onus on grocery stores to take the sting out of inflation for Canadians.
She called on retailers to now take a “responsible approach” to their pricing to support Canadians.
Michelle Wasylyshen, spokesperson for the Retail Council of Canada, which represents the country’s biggest grocers, reiterated in a statement on Tuesday that retailers are not taking advantage of stubborn inflation to keep food prices high.
“Grocers have been clear that food margins are flat,” she said.
“They have also been clear that they continue to face record high-cost increases from suppliers. Costs in the supply chain are the reason food prices are high.”
— with files from Global News’ Uday Rana