Home Economy Why your grocery bills stay high even as inflation slows

Why your grocery bills stay high even as inflation slows

by SuperiorInvest

FP explains: Why do Canadians’ grocery bills keep rising? It’s complicated

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Canada’s inflation fever may have broken out in December. The consumer price index was 6.3 percent higher than a year earlier, compared with a year-on-year gain of 6.8 percent in November – and 8.1 percent in June.

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Inflation in the prices of petrol, heating oil, household replacement and household appliances have all slowed noticeably. Yet one important set of prices continued to rise at an alarmingly fast rate: your grocery bills. Retail food price inflation has remained stubbornly high, hovering around 11 percent over the past four months. Statistics Canada said price growth is starting to moderate in some categories, such as baked goods, but that was offset by the price of fresh vegetables this winter, which jumped 13.6 per cent in December compared to the same period last year. The price of tomatoes increased by 21.9 percent.

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What’s happening? It’s complicated. Here’s what you need to know.

The weak dollar and your vegetables

At this time of year, Canada is dependent on the powerhouse southern growing regions of the United States and Mexico for most fresh vegetables. But plant diseases and bad weather have disrupted production in some of those locations, said Ron Lemaire, president of the Canadian Produce Marketing Association, which represents fruit and vegetable growers and importers. Florida is still reeling from a hurricane this fall. And this month, farmers in California — mostly concerned about drought in recent years — are scrambling to save their crops after a series of atmospheric rivers caused flooding and mudslides. Previously, a disease transmitted by bedbugs wiped out Roman and glacial crops in the Salinas Valleythe lettuce-growing capital of the world, causing price spikes across North America.

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A lack of supply naturally drives up prices. Higher import prices are exacerbated by a weaker dollar: the Canadian currency was trading around 72 US cents in mid-December, down from 80 cents in April. “That also drives up prices,” said Leslie Preston, an economist at Toronto-Dominion Bank. “We had a weaker Canadian dollar and we import a lot of food from the US”

Romaine lettuce in store in California.
Romaine lettuce in store in California. Photo: Justin Sullivan/Getty Images

Unavoidable delay

Before bad weather and disease, farmers in North America had to deal with a wave of consequences of the war in Ukraine. Russia is an important fertilizer exporter, and sanctions on the country’s exports have raised the cost of one of the most important inputs in food production. At the same time, the war also caused grain prices to skyrocket, as this part of the world is one of the most critical breadbaskets on the planet.

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Canada was already short on grain supplies due to a poor crop in 2021. This year brought bumper crops on the prairies, but shocks like the one that followed Russia’s invasion of Ukraine won’t appear on grocery shelves anytime soon—and when they do, some it takes time for prices to come back down.

WI expect food price inflation to slow

Nathan Janzen

In other words, there is always a lag between spot changes and retail prices. Nathan Janzen, Royal Bank of Canada’s deputy chief economist, said it generally takes about six to 12 months for changes in commodity prices to filter through the supply chain and affect food prices.

The Bank of Canada tracks farm prices as part of its commodity price index, and those prices hit a two-year high in May 2022. “We expect food price inflation to moderate,” Janzen said. “There are early signs of that.

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Why the delay?

Many of the products on shelves right now were probably made in the summer or fall, so prices reflect the economic situation then, not now, said Michael Graydon, who runs Food, Health and Consumer Products of Canada, an industry lobby group. .

Food processors can also choose to lock in prices for the raw materials they need through futures contracts, where a farmer promises to provide a certain number of bushels, say, at a certain time and the buyer receives a price. If a tomato sauce producer signed a contract for tomatoes at a time when the market price was high, consumers will not feel it until the tomatoes are delivered, the sauce is made, and the producer can negotiate a price increase with the retail chains.

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“You’re now sitting on inventory that was produced at the height of inflation,” Graydon said. “So it’s going through the system now.

Tomatoes for sale in a grocery store.
Tomatoes for sale in a grocery store. Photo by Stefani Reynolds/AFP via Getty Images

Behind closed doors

For the past year or so, food brands have been pushing grocers to pay more for products they say are needed to cover rising fuel, transportation, labor and commodity costs during a surge in inflation. But Canada’s top grocery chains — Loblaw Cos. Ltd., the parent company of Sobeys Empire Co. Ltd. and Metro Inc. – say they’ve backed down, forcing brands to justify every increase and refusing to pay more unless they believe it’s necessary. justified.

“We’re pushing back pretty hard, and of course we’re getting a lot of requests for cost increases,” said Empire chief executive Michael Medline said in September 2022. “Sometimes we didn’t think they were factual and we didn’t take them.”

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The whole process increases the time between more costs being incurred by the manufacturer and those costs being reflected in retail prices, if at all. Actually, government report for 2021 on the food industry found that many retail chains require at least 12 weeks notice before cost increases take effect.

The price freeze is about to thaw

The most prominent clash between a food maker and a major grocer over cost increases came in early 2022, when Loblaw and PepsiCo Inc. After failing to negotiate a price, PepsiCo has pulled the plug on its Frito-Lay product lineclearing shelves in the food aisles of 2,400 Loblaw stores for two months.

Later in the year, Loblaw announced it would freeze prices on its No Name brand from mid-October to the end of January to help Canadians curb grocery inflation. said President Galen Weston.

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No Name Coffee at Loblaw grocery store in Toronto.
No Name Coffee at Loblaw grocery store in Toronto. Photo by JP Moczulski for Postmedia News

But industry insiders said the ploy looked very similar to the annual cut-off of cost increases that most retailers force at this time of year to avoid operational complications during the hectic shopping shopping season.

“There are blackout periods when price increases are not allowed (for example, from September to December),” a 2021 government report said.

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Graydon, the manufacturing lobbyist, said another round of price hikes could begin to hit stores now that the holiday blackouts are over. For example, the Canadian Dairy Commission has announced that an increase in the output price of milk will take effect in February.

“You must have frozen, no doubt about it,” he said. “From February 1 they will start to see some of the costs that were agreed before Christmas.”

This dynamic is likely to at least partially offset the effects of lower commodity prices. Like we said, it’s complicated.

• By e-mail: jedmiston@postmedia.com | Twitter:

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