Yearly increments in grocery prices persistently surpass Canada’s overall inflation rate.
Grocery costs are maintaining a steady increase, surpassing the overall inflation rate on an annual basis. However, analysts anticipate a gradual moderation in these price hikes as the year advances.
In July, grocery prices experienced an 8.5 percent growth in comparison to the previous year. This marks a slight decline from the 9.1 percent year-on-year increase observed in June, as reported by Statistics Canada. The deceleration in growth can be attributed primarily to the easing of prices in categories like fresh fruits and bakery products, as indicated by the agency.
A growth of 8.5 percent remains notably distant from the prominent inflation rate of 3.3 percent recorded in July. This represents a substantial decrease from the previous year’s peak of over eight percent.
However, examining the year-on-year surge in food prices doesn’t provide a complete narrative, according to Michael von Massow, a professor specializing in food economics at the University of Guelph in Ontario.
Von Massow explained that a number of the most significant monthly upswings in food prices occurred last autumn, resulting in an uneven distortion of the annual food inflation rate. Furthermore, when considering a month-by-month perspective, grocery prices in July exhibited a slower increase compared to the overall inflation rate.
Nevertheless, there is no doubt that food prices are continuing to rise, albeit at a reduced pace, he noted. This is leading consumers to experience the impact on their budgets.
“We can’t defer food purchases,” he said. “We can change our behaviour with driving if we want, we can defer the purchase of a new computer … but we can’t defer food.”
“The one thing we can be sure of is there’s going to be more volatility.”
There is a basis for hopeful expectations in the upcoming months, as the seasonal harvests within Canada might contribute to alleviating the expenses associated with certain fruits and vegetables, von Massow remarked. However, he also highlighted that food prices are considerably more susceptible to the ramifications of severe weather events. Additionally, the ongoing conflict in Ukraine, coupled with Russia’s termination of its grain export agreement, could also exert an influence on food prices, he added.
Anticipated by RBC economist Claire Fan, the trajectory of food price inflation is set to undergo further relaxation in the approaching months. This projection is rooted in the effects of reduced commodity prices and the gradual alleviation of supply chain constraints, both of which are anticipated to trickle down to consumer retail items. Fan expressed the expectation that the overall food price inflation rate will decrease to approximately five percent by year’s end.
Though prices remain notably elevated compared to the previous year, consumers can find solace in the prospect of encountering fewer unforeseen cost escalations during their grocery store visits, according to Fan.
Nonetheless, considering the extended timeframe, the occurrence of severe weather events across the globe is expected to further amplify the strain on food prices, she remarked.
Certain forecasters are indicating that the most recent inflation report has heightened the likelihood of an interest rate increase next month by the Bank of Canada.
Although a rate hike is not entirely implausible, there exists a requirement for additional economic data to be unveiled prior to the central bank finalizing its verdict, as stated by Marwa Abdou, Senior Research Director at the Canadian Chamber of Commerce.
“So much of the downward momentum and cooling that we’ve seen over the past few months has been overstated progress from soaring gas prices a year ago,” Said Abdou
“While those effects have now peaked, and heftier grocery bills, mortgage interest rate costs and energy prices remaining a pain point for Canadian consumers, we’re now getting a chance to focus on the real work that remains ahead.”
In the interim, Fan suggests that the central bank will probably maintain its current interest rates during the upcoming September meeting. This decision is inclined towards awaiting a broader set of economic data, particularly given the indications of fragility in significant sectors such as the labor market.
“From this point forward, the bar to keep moving interest rates higher is quite high,” she said.
