Posthaste: Miserable about food prices? There's a good reason for that
Canadians are complaining about food prices and, according to economists, there is good reason for that.
Grocery prices in this country have soared 30 per cent since 2019, rising at almost double the pace of the pre-pandemic trend.
To put that in perspective, the average Canadian is now spending over $1,600 more for groceries than before the pandemic, said Leslie Preston, senior economist at Toronto Dominion Bank.
It’s a problem that stands out on the world stage. Among advanced nations, Canada is one of three countries that has been particularly plagued by stubborn food inflation, said Capital Economics.
Canada, Japan and the United Kingdom have all seen food’s contribution to overall inflation climb much higher than historical averages, said Capital’s senior global economist Ariane Curtis.
In Canada, food inflation runs at about 4.2 per cent, compared with 2.6 per cent and 2.4 per cent in the U.S. and eurozone. That’s about twice the rate of overall inflation.
And we’re feeling it. In the Bank of Canada’s recent consumer expectations survey, respondents said they thought inflation was around 4 per cent, when actually it’s 2.3 per cent.
Food prices, which have a very visible and immediate impact on Canadians’ wallets, factor heavily in their perceptions of inflation, say economists.
Ottawa responded to Canadians’ complaints this week by boosting the GST tax credit , now renamed the Canada Groceries and Essentials Benefit, by 25 per cent for the next five years, and adding a one-time payment this year.
TD’s Preston said that’s appropriate because the federal government’s retaliatory tariffs on the United States helped drive up food prices in recent months. The tariffs were applied in March and then lifted in September.
But that’s not the only culprit. Energy prices, labour costs, a weak Canadian dollar and adverse weather have all played a role, said Preston.
America and Canada had been tracking pretty close on food inflation, but over the past year Canada has run ahead. Canadians feel this even more than Americans because groceries make up a larger share of their budgets , said Preston.
Lower income families, who spend about 14 per cent of their budget on food, feel the pinch the most.
While food inflation in most developed economies is expected to cool to 2 per cent by the end of this year, Capital Economics can’t say the same for Canada.
Rising producer prices and the lingering effects of drought should keep Canadian food inflation at about 4 per cent, said Curtis.
“So while lower food inflation will contribute to overall disinflation in the U.K. and Japan, it will remain a key factor pushing up overall inflation in Canada next year.”
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Canada is its own worst enemy when it comes to internal trade, according to the International Monetary Fund.
The IMF said this week that domestic trade barriers between provinces amount to a nine per cent tariff and lifting these could boost Canada’s gross domestic product by seven per cent.
As its chart shows, smaller and more remote provinces in Atlantic Canada and northern territories have the most to gain as their companies and workers win access to larger markets.
But all regions would benefit from improved productivity, more efficient allocation of capital and labour, stronger competition and better scale for high-performing firms, said the IMF.
How effectively Canada can mobilize its domestic market is just as important in shaping its future as is expanding trade globally, said report authors Federico J. Díez and Yuanchen Yang.
“Turning thirteen economies into one is no longer just an aspiration — it is an economic imperative.”
Today’s Data: International merchandise trade, United States trade balance, wholesale trade, factory and durable goods orders
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Today’s Posthaste was written by Pamela Heaven with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.
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