Grocery prices to spike
There’ve been quite a few anxiety-inducing news reports about grocery prices lately, triggered mostly by a Dalhousie University study that came out earlier this week estimating that the typical Canadian family will spend up to $420 more on groceries and dining out in 2017. I mean, that’s not insignificant. $420 per year could be a weekend vacation to Cuba or a couple of really really nice hockey sticks for the kids.
But exactly how severe have the spikes in food prices been, and how bad can it get?
Take a look at this chart. It tells the tale of food inflation in Canada since January. At first glance it looks like food prices are decreasing, but this chart is measuring the rate in which food prices are increasing not the actual price of food. A couple of interesting things to note:
First, food inflation was pretty severe in the first three months of this year. In January for instance, food inflation was 4 percent—vastly above the overall inflation level of the economy which has been in the range of 1-2 percent in the last year or so. There was actually a whole fiasco that ensued last winter because of this, infamously known as the cauliflower crisis. The short story is that this extremely boring vegetable became victim to the falling Canadian dollar and the drought in California. Apparently the price of one cauliflower head was $8 at its peak.
Second, in the spring and summer of 2016, there was a declining trend in food inflation. October was one of those miraculous months where for the first time in 17 years, food prices actually decreased. Not a lot—only a seventh of a percent, but heck, after that cauliflower nightmare, we’ll take it.
Food prices can be affected by several factors. Weather ranks at the top of that list, along with transportation costs, labour costs, and the general geopolitical risks. If a growing season is too wet or too dry, crops cannot thrive. A shortage of a particular kind of crop (like cauliflower) will most certainly translate into an increase in price. In Canada however, the weakness of the Canadian dollar in the last two years has weighed heavily on food prices. Since 2011, we have become increasingly dependent on food imports from abroad, and because quite a vast amount of our imports are from the US (Canada’s largest trading partner), the strengthening of their currency, coupled with the sluggishness of ours has not boded well for our grocery bills.
The Dalhousie University’s study on food prices forecasts two key things: that the Canadian dollar is likely to continue dropping in 2017 (there’s a technical explanation for why which I’ll reserve for another time), and the effects of the La Nina weather patterns are likely to be as unpredictable as they were in 2016. Both these factors will directly impact the price of imported foods for Canadian shoppers.
And of course reality TV star (and president-elect) Trump is a wild card in all this. His stance on immigration could potentially force as many as two million illegal workers to leave their jobs in the US agricultural sector, drastically increasing labour costs for food producers.
All of this to say that the key theme in food prices isn’t so much that they will continue increasing. Yes they probably will, in line with overall inflation, and that’s normal. What could really set us back is the manner in which food prices will potentially fluctuate this coming year. Meaning that you could see that $420 tab spread out over as many as 12 months, and as few as three.
Vanmala is VICE Canada’s Money & Economics Editor. Follow her on Twitter