Opinion: Food inflation seems to be concluding

Statistics Canada is reminding Canadians every month how painful their trips to the grocery store have been recently. The retail inflation rate is still at an astonishing 9.9 per cent, its highest point since 1981.

In fact, our food inflation rate has exceeded the general rate since December of last year, which is why food prices are on everyone’s mind.

We are seeing signs, though, that things are improving, and calmer seas are ahead as we enter the fall season.

Food inflation is often about context. Back in July 1978, while the inflation rate was at 9.4 per cent, food prices were increasing year-to-year by a whopping 20.2 per cent. That is by far the largest difference we have seen in the last 50 years. In the United States, food inflation at grocery stores is above 13 per cent. The United Kingdom’s food inflation rate in July was 12.7 per cent, much higher than Canada’s.

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The good news is that our food inflation appears to have peaked, or at least it’s under control, for now. Since April, our food inflation rate overall, which is now 9.2 per cent with both retail and service combined, has not yet 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 have seen month-to-month increases exceeding 0.9 per cent a total of 12 times.

The bottom line is that the numbers are telling us that extreme volatility affecting food prices may be behind us. The impact of Russia’s invasion of Ukraine has now been mostly absorbed by food supply chains.

Supply chains are also dealing with more predictable conditions related to COVID protocols. As governments continue safety measures, COVID-related rules and conditions are much more foreseeable, which is helping the food industry.

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 lockdowns, implemented last-minute, 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 one is dairy.

The Canadian Dairy Commission has recommended a second unprecedented increase of 2.5 per cent, which began Sept. 1. Dairy farmers are getting 11 per cent more for their milk and butterfat since February. It’s great for farmers, but retail prices in the dairy section have skyrocketed by 25 per cent since February, in the case of fluid milk.

In essence, with record-breaking increases this year, dairy is literally pricing itself out of the market, and some dairy processors are adjusting. Lactalis, the largest milk buyer in the country, recently converted its Sudbury-based 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.

Bakery goods are another category in which we have seen higher prices. For many years, bakery goods were a non-story. This year, with more consolidation in processing, higher prices were expected. 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. Many food verticals have been impacted by procurement issues. Canada’s Food Price Report in December predicted higher bakery and dairy prices, so it’s not necessarily a surprise.

If you were to compare the current inflationary cycle to a baseball game, we’re in the seventh-inning stretch. We also learned last week from Statistics Canada that grocery store sales dropped three per cent since January, so the market is tightening. More consumers are visiting non-traditional grocers like Walmart or 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. A sign of the times.

– Sylvain Charlebois is the Senior Director/Directeur Principal Agri-Food Analytics Lab at Dalhousie University.