Statistics Canada hasn’t had a lot of good news for Canadian consumers.
The agency put food inflation rate in the country at 8.8 per cent in June, which is still higher than the general inflation rate. Everyone is affected by higher food prices. Americans recently learned that food inflation at the grocery store was 12.4 per cent, a 41-year high.
Despite this, there is some light at the end of the long tunnel we’ve all been passing through in recent years.
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First, I believe food inflation in Canada may have peaked. Supply chain challenges are still there, making the movement of goods more expensive, but things are slowly improving. Pandemic protocols around the globe are growing increasingly predictable, making logistical planning much easier.
In February, the Russian invasion of Ukraine pushed commodity prices higher. That made input costs an issue for most farmers and food manufacturers, but this seems to have stabilized as well.
Markets are much calmer than before and, most importantly, more predictable. If nature continues to co-operate, Canada’s agricultural sector should see a strong harvest this year, helping to keep commodity prices lower and costs down.
Consumers are clearly trading down, and grocers know it. Since March, dollar stores have sold 18 per cent more food, according to analytics firm NielsenIQ. Discount store sales have also increased by five per cent in that period.
More discount store conversions are also on the way. We have seen at least 15 new major discount stores in the country so far this year. Depending on the week, consumers can save 25 to 40 per cent at a discount store, compared to a regular grocery outlet.
But the Canadian Dairy Commission played party pooper by recommending an unprecedented second cost increase of 2.5 per cent for Sep. 1, as schools open in the fall. This latest increase comes after a record 8.4 per cent hike in February.
As a result, the price of butter is up almost 20 per cent since December. In some markets, fluid milk is 25 per cent more expensive than last winter. The 2.5 per cent jump at the farm will look more like six to 10 per cent at retail. As prices stabilize in most sections of the grocery store, dairy will be the exception for a while.
To add insult to injury, we also recently learned that executives at the Canadian Dairy Commission – federal employees – received bonuses last year. The Crown corporation refused to disclose the amounts or reasons that bonuses were given.
There’s nothing wrong with bonuses, but the lack of transparency is unacceptable. Taxpayers and consumers deserve better. Our quota system was designed to make our dairy sector immune to inflationary cycles. Something is not working.
Interest rates are also going up. The Bank of Canada recently raised its benchmark interest rate a full percentage point, the biggest one-time increase since August 1998.
Since the announcement, mortgage brokers have been busy. For many households, the cost of shelter spiked, making it harder to spend on anything else.
Food is a necessity. Before the interest rate hikes, the market was flooded with cash and some consumers had no qualms about paying $28 for a T-bone steak. This obviously contributed to higher prices in our economy, including at the grocery store and especially for premium products and categories.
As fewer people can now afford a $28 steak, we are expecting some prices to soften or even drop a little – simple food economics.
Our Canadian dollar, however, will strengthen against the American greenback given the higher rates. This will make imports cheaper, and we do import many food products. That will likely help consumers purchasing centre-of-the-store dry goods, which have also seen prices skyrocket. But the American Federal Reserve is also planning another rate increase, which could put pressure on our dollar.
Overall, we should not expect prices to drop anytime soon, year-to-year, but the rate at which food prices are rising is slowing. Food inflation is critical for our food economy, but a 10 per cent rate is not sustainable. As predicted last December by Canada’s Food Price Report 2022, we should end the year at about seven per cent, as forecasted, unless some other geopolitical crisis occurs.
That’s still high, but it’s not 10 per cent.
