(Toronto) Food inflation has outpaced headline inflation for months in Canada, with grocery prices showing double-digit increases year on year, and economists say it will take longer to watch her cool down.
While inflation data released on Tuesday gave overall good news, growth in grocery prices showed few signs of slowing down, said Pedro Antunes, chief economist at the Conference Board of Canada. .
In December, food prices increased by 11.0% on an annual basis, – compared to 11.4% in November –, while headline inflation stood at 6.3%. Grocery prices rose 9.8% in 2022 from 2021, rising at their fastest rate since 1981. They had climbed 2.2% in 2021.
In fact, the prices of every food item tracked by Statistics Canada rose in 2022, with one exception: canned salmon, the price of which fell. Some common items helped push up average food prices, including cereals, which rose 13.6%; processed meat, up 9.6%; fresh vegetables, up 8.3%; fresh fruit, up 10.4%; and dairy products, up 8.6%.
Food prices have been affected by a multitude of global factors, including the war in Ukraine and extreme weather conditions. In addition, energy prices have been a major factor, pointed out David Macdonald, senior economist at the Canadian Center for Policy Alternatives. He noted that higher margins throughout the food supply chain were likely another factor.
But while energy prices fell as 2022 progressed, food inflation did not follow the same trajectory, Macdonald noted, since energy was not the only factor to do drive up prices.
“As of now, there is no indication that grocery store food prices are moderating,” he said.
Meanwhile, the Bank of Canada aggressively raised interest rates in an effort to contain inflation.
The central bank’s key interest rate rose from 0.25% at the start of 2022 to 4.25% in December, with a further hike expected to be announced next week, according to most observers.
But economists note that the interest rate instrument has little or no effect on food prices, as they are more closely tied to global factors.
This is likely why food prices have outpaced headline inflation and why they are likely to take longer to cool, Antunes said. “These things have nothing to do with monetary policy. »
Many factors affecting food began before headline inflation began its meteoric rise, Antunes pointed out, citing global production issues in 2020 and growing demand as economies eased after the pandemic. . Then, rising natural gas and fertilizer prices added pressure, he said.
Gasoline prices have cooled from their highs (though not necessarily attributable to central bank decisions), the housing market is sagging under the weight of soaring interest rates, and yet food inflation remains stubbornly high, forcing itself on consumers every time they go to the grocery store.
Even if some commodity prices have returned to pre-war levels, Antunes observed, it may take time for this to work its way through the system.
“I think we will eventually see an easing of pressure on food prices,” he said.
At this point, Mr. Macdonald is not convinced that food inflation will moderate in 2023 unless something major happens to revive it, such as the end of the war in Ukraine. But he hopes food inflation has at least peaked.