The overall easing of inflation has not been reflected in food prices, with experts saying bad weather and geopolitical turmoil will continue to wreak havoc on Canadians at the grocery store.
Overall annual inflation fell to 2.8% last month, but prices for food purchased at grocery stores continue to accelerate at a 9.1% year-on-year pace, according to Statistics Canada’s latest consumer price index report for June, released on Tuesday.
Sylvain Charlevoix, director of Dalhousie University’s Institute for Agro-Food Analysis, says the gap between inflation in general and rising food prices in particular is causing shoppers’ frustration.
“That’s the sticker shock factor,” he told Global News. “This gap really pisses people off because they’re looking at the economy and things are getting back to normal, but not the grocery store.”
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Statcan said the biggest contributors to food inflation in June were meat (up 6.9%), bakery products (up 12.9%) and dairy products (up 7.4%). StatCan also noted that grape prices rose 30% month-on-month, pushing fresh fruit prices up 10.7% for the year.
Charlevoix says extreme weather is the main reason for the current high prices of fresh food.
Drought is affecting cattle herds in western Canada and the United States, driving up beef prices, he said. He expects the issue to continue to put pressure on raw meat prices over the next few months.
Temporary weather events may be responsible for the monthly spike in food prices, but Charlevoix says each disruption is part of a broader trend. The impact of climate change has been a “constant” factor in fresh food prices, he said, having analyzed food prices for the past 15 years.
“Climate change is taking a toll on Canadians every day, whether we like it or not,” he says.
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Canada’s persistent food inflation will face further challenges in the coming months, as Russia this week allowed the withdrawal of the Black Sea Grains Agreement, allowing the peaceful flow of wheat products from Ukraine and Russia to international markets.
Canada is itself a major exporter of wheat, but prices for commodities such as grain are set internationally, so any impact on supplies in other parts of the world could push prices up globally, Charlevoix said.
Mathias Margulis, an associate professor of food systems at the University of British Columbia, told Global News this week that the collapse of the trade deal was “very concerning for global food security” and could lead to higher food prices in North America.
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But the ultimate impact on prices will depend on how markets react to the news and how other countries structure their supply chains in an attempt to keep exports from Ukraine in light of the collapse of the deal, Margulis said. Food inflation has been plaguing consumers in Canada and the United States for months, but the problem is particularly acute in developing countries, he added.
“It’s very difficult to judge, but I would be concerned if this adds pressure on prices,” Margulis said. “The impact may be small here in North America, but in developing countries, which are much more dependent on food imports, the impact will be much greater.”
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Charlevoix said so far grain futures prices have not risen as much as expected following the end of the Black Sea grain deal. Futures prices set the market’s expectation of how much a commodity will trade in the coming months. In the spring, these indicators predicted the higher beef prices Canadians are facing today, Charlevoix said.
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Futures prices are relatively calm, he said, because markets are already pricing in the end of the grain deal, or because observers expect talks to revive the deal will be successful with minimal disruption to exports.
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In its annual food price forecast released in December, Agri Food Analytics called for annual grocery store price increases of 5-7% in 2023. Despite food inflation remaining tenacious through the first half of the year, Charlevoix told Global News that he would stick to his demands, hoping for some easing this year.
He noted that food price inflation fell 0.1 percentage points in June from the previous month. That doesn’t sound like much, but even a small drop would be far more favorable than the 0.9-point increase seen in May, he said.
But Charlevoix warned that some of the easing seen last month could be reversed by the impact of new clean fuel regulations and a carbon tax on the East Coast starting July 1.
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“In fact, I think June numbers are promising for the future.
The Bank of Canada said businesses would need to “normalize” pricing to bring inflation down to its 2% target, but in recent months businesses have passed on high costs in their supply chains to consumers.
Finance Minister Chrystia Freeland on Tuesday named the federal “food rebate” introduced earlier this month as one of the measures Ottawa has used to put a strain on grocers to bail out needy consumers and relieve Canadians of inflationary woes.
He called on retailers to take a “responsible approach” to pricing to help Canadians.
“Now is a very important time for all Canadian businesses to realize that the war on inflation must end and that food prices also need to come down,” Freeland said.
In a statement on Tuesday, Michelle Vasilishen, a spokeswoman for the Canadian Retail Council, which represents the country’s largest grocers, reiterated that retailers are not using stubborn inflation to keep food prices high.
“Grocers are making it clear that grocery margins are flat,” she said.
“We also make it clear that we continue to face record high cost increases from our suppliers. Supply chain costs are responsible for the high food prices.”
— with file from Global News’ Uday Rana