Grocery prices continue to climb in Canada, rising last month at the fastest rate in decades – and against expectations food inflation would slow by end of summer.
Statistics Canada reported Tuesday that food prices increased by 9.8 per cent in August (10.8 per cent for groceries and 7.4 per cent in restaurants), compared with August of last year. It’s the fastest increase for groceries since 1981, and attributed in large part to continuing supply chain challenges, extreme weather and Russia’s invasion of Ukraine.
Food inflation persists even as the general inflation rate has cooled – slowing for the second straight month in August to 7 per cent, compared with August of last year. Earlier this year, many economists had predicted food prices would also cool by the end of the summer.
“We had hoped to begin to see some relief,” said Mike von Massow, a professor of food economics at the University of Guelph. “But while there are some good things on the horizon, there are also some dark clouds.”
Prof. von Massow said earlier predictions had forecast that major drivers behind food price hikes globally – the Ukraine conflict and high transportation costs due to continuing supply chain issues – would have further settled by now.
For instance, Prof. von Massow pointed to optimism earlier this summer after grain shipments began moving out of Ukraine. But exports since then have been slow, he said – “probably more symbolic than impactful.”
In fact, some of the biggest price hikes last month were in categories directly affected by conflict in the region. The food categories involving wheat – one of Ukraine’s most exported products – saw large increases, including bakery (15.4 per cent) and cereal (14.5 per cent). Statistics Canada also reported a 27.7 per cent hike for “edible oils.” Ukraine is the world’s largest exporter of sunflower oil.
Transportation challenges and other supply chain issues have also lingered.
While fuel prices have begun to drop, said Prof. von Massow, the overall cost of transportation has remained stubbornly high. Because food is perishable and needs to be trucked in constantly, freight costs make up a large component of grocery prices. And because of continuing labour issues – and persistent shortages of truck drivers – those costs have remained high.
Another factor causing uncertainty is the weather. Previously, the upcoming harvest in North America had signalled optimism for food prices. But while crop levels in Western Canada appear promising, large swaths of the United States – where much of Canada’s fresh produce is grown – have experienced record-level droughts.
Sylvain Charlebois, director of Agri-Food Analytics Lab at Dalhousie University, said he still believes there’s reason for optimism.
“I do think things will get better,” he said. “They’re just not getting better as quickly as we wanted.”
Prof. Charlebois pointed to the global context where, in general, food prices are on the decline. But Canada’s food inflation has remained lower than the rate seen in major trading partners such as Britain and the U.S.
And when it comes to affordability, Canadians still spend a relatively small proportion of their income on food – on average, about 10 per cent. In some developing countries, the figure is well over 40 per cent. “We still have, from a global and historic perspective, very, very low food prices,” said Evan Fraser, director of Arrell Food Institute at the University of Guelph.
But, Prof. Fraser added, food prices make up only a part of the affordability picture. He pointed to Canada’s continuing housing crisis: the shortage of affordable housing, and the challenge that places on low-income individuals to afford healthy, nutritious food.
“When you consider the extraordinary amounts Canadians spend on rents, and rises in food prices – especially when it’s rising faster than inflation, and higher than global prices,” he said, “you have to think Canada has a unique crisis in terms of food insecurity.”