Food inflation remains stubbornly high in Canada despite efforts to quell it

Food inflation outpaced overall inflation for months, with grocery prices hitting double-digit increases in 2022, and economists say it will take longer to subside than overall inflation.

Though Tuesday’s inflation data gave good news overall, grocery prices showed little signs of cooling, said Pedro Antunes, chief economist at the Conference Board of Canada.

In December, prices of food purchased from stores were up 11 per cent on an annual basis compared with 6.3 per cent overall, down from 11.4 per cent in November. Grocery prices were up 9.8 per cent in 2022 compared with 2021, the fastest pace since 1981 and a far cry from the 2.2 per cent seen in 2021.

Prices for every single food item tracked by Statistics Canada went up in 2022, with one exception: canned salmon, which went down in price. Certain common items helped drive average food prices up, with cereals up 13.6 per cent, processed meat up 9.6 per cent, fresh vegetables up 8.3 per cent, fresh fruit up 10.4 per cent and dairy products up 8.6 per cent.

Bank of Canada raising prices

Food prices have been affected by a slew of global factors, including the war in Ukraine and extreme weather, and energy prices have been a major factor, said David Macdonald, senior economist with the Canadian Centre for Policy Alternatives. He said higher margins along the food supply chain are likely another contributing factor.

But though energy prices cooled as 2022 progressed, food inflation did not follow suit, noted Macdonald, because energy wasn’t the only factor driving prices up.

“At this point, there’s just no indication that grocery store food prices are moderating,” he said.

Meanwhile, the Bank of Canada has been raising interest rates at a breakneck pace in an attempt to rein in inflation.

The overnight rate went from 0.25 per cent at the beginning of the year to 4.25 per cent in December, and the central bank is widely expected to announce another increase next week.

But economists say the blunt instrument of interest rates has little to no effect on food prices because they are so tied to global factors.

That’s likely why food prices have outpaced overall inflation and why they will likely take longer to cool, said Antunes.

“These things have nothing to do with monetary policy,” he said.

Gas prices have since cooled from their lows

Many of the factors affecting food began before overall inflation started its meteoric rise, said Antunes, citing global production problems in 2020 and growing demand as economies reopened from the pandemic. Then, the rising costs of gas and fertilizer added to the pressure, he said.

Gas prices have since cooled from their lows (though that’s not necessarily because of the bank’s actions), the housing market is sagging under the weight of interest rates spiking, and yet food inflation remains stubbornly high, staring consumers in the face every time they go to the grocery store.

Prices for some raw materials have returned to prewar levels, said Antunes, but it may take time for that to work its way through the system.

“I think we will see some easing pressures on food prices, eventually,” he said.

At this point, Macdonald isn’t confident that food inflation will moderate in 2023 unless something major happens to kick-start it, like an end to the war in Ukraine.

But he’s hopeful food inflation has at least hit its peak.