Food inflation eases but some prices keep surging

Statistics Canada is reminding Canadians every month this year how painful their trips to the grocery store are. The retail inflation rate is at an astonishing 9.9 per cent, its highest point since 1981. And food inflation has exceeded the general rate since last December, which is why food prices are on everyone’s mind.
Allegations of “greedflation” are rampant, accusing the industry of gouging consumers stressed by an increasingly higher cost of living.
We’re seeing signs, though, that things are improving. Calmer seas are ahead as we head to autumn.
Food inflation is often about context. In July 1978, while inflation was at 9.4 per cent, food prices were increasing year-to-year by a whopping 20.2 per cent. That’s by far the largest difference we’ve seen in the last 50 years. Things were out of control.
Canada’s situation is nowhere near what it was in 1978 or what it is elsewhere. In the United States, food inflation at grocery stores is above 13 per cent, and the United Kingdom’s food inflation rate in July was 12.7 per cent, again much higher than ours.
The good news is that our food inflation appears to have peaked or is at least under control, for now. Since April, our overall food inflation rate – 9.2 per cent with retail and service combined – hasn’t reached 10 per cent.
The highest month-to-month jump this year was in January, at 1.4 per cent. That was the highest month-to-month jump since 2016. In June, it was 0.1 per cent. July, however, saw another jump at 0.9 per cent. But since 2011, we’ve seen month-to-month increases exceeding 0.9 per cent a total of just 12 times.
The numbers are telling us that extreme volatility affecting food prices may be behind us. The impact of Russia’s invasion of Ukraine on commodity prices, which triggered a new inflationary cycle, has been mostly absorbed by food supply chains. Commodity prices peaked on May 17 and have dropped significantly since.
Supply chains are also dealing with more predictable conditions related to COVID-19 protocols. As governments continue to keep people safe, COVID-related rules and conditions are much more foreseeable, which is really helping the food industry, service and retail.
As consumers, we should expect more rebates, discounted products and loss leaders. It’s easier to offer deals when market conditions are more stable.
Consecutive last-minute lockdowns took their toll and made life a nightmare for many in the food industry.
There are, however, some trouble spots at the grocery store. The first is dairy, with the Canadian Dairy Commission recommending a second unprecedented increase of 2.5 per cent to start on Sept. 1.
Dairy farmers are getting 11 per cent more for their milk and butterfat than in February. It’s great for our farmers, but retail dairy prices have skyrocketed. Since February, according to BetterCart Analytics, fluid milk prices have increased by about 25 per cent. Yogurt, cheese, sour cream and ice cream are all much higher since February, and we expect another jump in the weeks to come as kids go back to school. It couldn’t happen at a worse time.
With record-breaking increases this year, dairy is pricing itself out of the market, and some processors are adjusting. Lactalis Canada, the largest milk buyer in the country, recently converted its Sudbury, Ont., plant and will now solely manufacture plant-based products. This points to where the market is going.
While dairy farmers want more money, what seems to be underappreciated is that we will lose more farms due to an anemic demand for more expensive dairy products.
We’ve also seen higher prices for bakery goods. For many years, bakery goods were a non-story. This year, with more consolidation in processing, it was expected we would see higher prices. Typically, the correlation between commodity and retail prices is weak, but this year’s market conditions with grain scarcity have made access to some ingredients challenging.
Canada’s Food Price Report released in December predicted higher bakery and dairy prices, so it’s not necessarily a surprise.
If you compare this inflationary cycle to a baseball game, we’re in the seventh-inning stretch.
Last week, we learned from Statistics Canada that grocery store sales have dropped three per cent since January, so the market is tightening. More consumers are visiting non-traditional grocers like Walmart, Costco, or even dollar stores to make ends meet.
The days when people flocked to grocery stores at the beginning of the pandemic are long gone. Food sales are earned more than ever. It’s a sign of the times.
Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.