Why your grocery prices are getting tougher to predict

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Jordan Heath Rawlings Yes, groceries are expensive right now. Everything’s expensive right now. And hey, you know this. I never said we were a Breaking News podcast, but here’s the news part. There are degrees to the stuff, and even if it might not feel back to normal or even good right now, inflation is. Falling pretty quickly. The inflation rate cooled for the fifth month in a row, and at 4.3% for the month of March was the lowest level for the consumer price index since August of 2021. Now, that number’s still a ways away from the 2% target that the Bank of Canada has set, but you can hear that number and think, okay, we’re getting there. But when it comes to grocery prices, Normal is still a long ways off. Grocery prices are also still on the move upward, but at a slower pace rising 9.7% year over year in March, down from 10.6% in February. Now, here’s why this difference matters. The further away from the rate of inflation that something is, the less predictable it can be in the future, and as you’ll hear today, Grocery prices used to be very, very closely tied to the actual rate of inflation, but they’re not anymore. So why not? What’s happening to food prices around the world, and especially here at home that’s making them so volatile? What do the people who try to predict how much we’ll be paying for groceries think when they see these numbers? What did they expect to see this year? And what are we actually getting? And finally, these prices can’t stay this high forever. Can they? I am Jordan Heath-Rawlings. This is the big story. Dr. Kelly Wiseman is the academic Director of the Master of Food and Resource Economics Program at the University of British Columbia. She is also one of the authors of the Canada’s Food Price Report for 2023. Hello, Dr. Wiseman.

Dr. Kelly Wiseman Hello. Thank you for the invite.

Jordan Heath Rawlings Oh, you’re welcome. Thank you so much for joining us. I wanna start maybe just by asking you to take us back to late 2022, I guess it would’ve been when you were putting this report together, where was the general sentiment at that time, uh, around the price of groceries in this country?

Dr. Kelly Wiseman Yes. That was always, feels like another world when you go backwards. So we tend to start, uh, you know, looking at it over the summer. So 2022 summer, we define our, you know, model, all those aspects. And then around October is when we actually really start defining our numbers with it. So what were we thinking of? We were thinking that prices. In terms of food inflation, we’re going to continue. There would be some softening throughout the year, but they will, they’re not, the prices are not going to come down, so not what we had expect that in terms of, you know, price go up, price go down, that they would continue to go up, but hopefully at a decreasing rate. In terms of family, we were looking at if a traditional, you know, sort of two adult, two kids of some form that looking at spending maybe around that 14, $15,000 per year at the actual food levels, looking at it, going up about a thousand dollars. So that’s what we were thinking at that particular point. Between that five and sort of seven and top line 7%, we’ve talked a lot on this program about how stable things had been for quite some time in terms of inflation and you know, the cost of living while always kind of rising, uh, being relatively predictable.

Jordan Heath Rawlings Can you remember, uh, seeing anything like this in terms of like grocery inflation that just, you know, you mentioned it might slow down a little bit, but it hasn’t calmed down at all much.

Dr. Kelly Wiseman Absolutely. So it hasn’t slowed down all as much as we maybe had hoped that would go down to that two or 3%, but it absolutely is slowing down. And I mean that is when we look at the month to month that it seems to be doing that for a time when this happened before. Yeah, it’s hard to remember. I mean, we are used to paying this idea of, you know, around that, you know, small percentage of our disposable income towards, uh, food. And we’re expecting that that percentage doesn’t change as well as the food percentage.

Jordan Heath Rawlings In terms of inflations with it, how difficult is it to, you know, sit down and try to predict what’s gonna happen in this economy? It seems like everything is prone to fluctuations and. It must be hard to look at the beginning of 2023 and and kind of say, this is what food prices are gonna look like this year. Like how volatile are those predictions?

Dr. Kelly Wiseman Yeah, that’s such a good question. Food prices, they’re notoriously difficult. To predict, and there’s a number of reasons for that. You know, the primary one being that, that we are looking at a global food market. So it means that it’s not just Canada, north America, uh, that is impacting our prices, it’s world. It’s everything. It’s, it’s something happens in Africa, something happens in South America, in Europe, of course associated with it. And what I mean by that, it can be impacts geopolitical, it can be climate, it can be policy changes, and they’re all ones that filter into. Are, you know, decisions associated with it. Even things such as exchange rates, uh, looking at, you know, policies that, that maybe one country puts in to look at controlling or limiting with trade or tariffs or different elements of those. So there’s, it’s a really highly dynamic industry for sure. But on the flip side of that, it’s important to understand that food prices are fundamentally developed through supply and demand.

Jordan Heath Rawlings So demand in terms of what do we want? Are we of high demand for, you know, various products or low demand? Is it increasing, is it decreasing and supply meaning looking at what does it cost to produce that stuff?

Dr. Kelly Wiseman So there’s some fundamentals, but there’s also high impact elements that come into play. You mentioned that food inflation has slowed and it has, but I played a clip, uh, in the intro to this interview, kind of displaying just how much it hasn’t slowed compared to the rate of inflation in general, which is coming down quite rapidly. Food is still sticking up there. Is there any worry, I guess, is this something that. Can stabilize at a permanently higher rate. So we’re looking at food price inflation from a year to year. Looking at March, 2022 to 2023, looking at about that 8.9%, so that year to year kind of base. And of course looking at overall inflation is much lower than that. We’re looking at what, 4.6, something like that. But. Now here is the good news is that if we instead look at between what happened between say, February, 2023, so just one month, February, 2023 to March, we’re looking at, uh, the actual percent is only around that 0.2%. Mm-hmm. Now, if we do some of those wonderful economic time, value of money and annualize these aspects, in terms of that 0.2%, what we get is about 2.43. Annualized percentage. So that means that if that keeps up, you know, that is a slowing and if that keeps up, then that actually is where this change may happen. That it’ll will the actual food price inflation will follow much more in line with overall inflation.

Jordan Heath Rawlings I want to ask you about optics for a second, cuz it was only a couple of weeks ago that Galen Weston and others in the grocery industry were called up to Parliament Hill to talk about corporate profits and the cost of food. And I guess I just wanna know, you know, how much do you think Canadians do or don’t understand about what determines the prices they pay when they’re shopping at a supermarket? It’s a big question, you know, where are these fundamentals, like I mentioned, with supply and demand, and where are these other sort of more, you know, external impacts in the global markets with it?

Dr. Kelly Wiseman I think, you know, fundamentally, I think most Canadians understand that you know, these prices that we as consumers, Are seeing in the retail sector. So we go into our grocery stores and what we’re seeing are based upon a whole chain of a supply chain and various companies within those supply chain. So you know, whether it be starting from the producer and then going to the processor, going to the manufacturer, then it goes to maybe a wholesaler, then to our local food stores, our retail grocery stores, and then to us. So, thinking about it. Most people understand that there’s all those different sort of pass throughs that we’re looking at or just certain companies that we’re going through in terms of supply chain. What becomes important to that particular point is to sort of say, okay, so I get where, you know how food gets to me, but then connecting it to prices, realizing that at each every level, whether it be the producer, the processor, the manufacturers, I’m mentioning that each one of those has costs, and when we are in a time of inflation, and it’s important to remember that food prices have gone up, but not in isolation. Other elements have gone up. And food, you know, is one of those in terms of shelter and energy and all the ones so that these companies, each one of them are facing labor changes in terms of cost increases, rent, transportation, utilities, maintenance. All of their costs are going up for each and every one of those. So what we’re talking about, you know, from a point of view of how are our prices determined, they are fundamentally determined by everybody in that supply chain. So if you have as a small example, a uh, uh, bread manufacturer, so they are producing bread, manufacturing bread, and they’re transporting it so they have their own truck. What kind of cost do they face? Well, if they’re looking at it, they’re doing labor increase, they’re doing maintenance increase, they’re doing utilities, increase all of those and they have to pass it on so they pass it on to that next level. So maybe to the wholesaler or to the retailer. And if you think about that happening at each level, that is an important, you know, realization for us as consumers. There’s a supply chain, but when you know there’s a many players within that supply chain and the added cost creates that added in terms of price inflation.

Jordan Heath Rawlings But when I talk about optics of this kind of thing, you know, and listen, I’m gonna use Galen Weston as an example, knowing that he is not the only supermarket owner or businessman in the country, but when, when you see profits at pretty close to record levels, or at least increasing while Canadians are struggling to afford their groceries, I guess my question is, does that make it difficult to understand?

Dr. Kelly Wiseman All those factors you just spelled out when you know you’re seeing a top line number of more profit for this mega corporation. Right. So in terms of optics, I think the thing to think about, whether it be Galen Weston or you know, the other sort of four big players, the Sobeys in Costco and Metro and Walmart. If, if we look at those, the way to think about that is to say, okay, are these prices. Maybe different than they were in, um, you know, in numbers of years ago. Well, sure we see food price inflation. So what about comparing it to other countries? And of course, as an economist, that’s the kind of thing exactly that, that, that we would look at, we’d say.

Jordan Heath-Rawlings Okay. There’s concentration in the industry. There’s these five big players that does 75% of the sales. What does that mean to us? Like what are the goods, what are the bads? How does it compare?

Dr. Kelly Wiseman So in terms of comparing, so our prices, as we know, are, we’re looking at that, what, 8.9%, uh, increase the march to march and restaurants are about seven ish, something like that. If you look in the United States and you look in the, the uk, that have not dissimilar, but not completely different types of, uh, levels in terms of retail stores. Theirs in terms of their food price. Inflation is every much the same level as us. So, uh, in the US it’s around that 8.5. And in the UK it’s much higher. It, they’re looking at between that 15 and 19%. So if we go back to the original question in terms of the optics, you know, I think, Jordan, that what happens is, is that we’re looking for. A target to say it could be this, but if we look at something like this, we say, well, it’s kind of a lie. So, right. It, it, it, you know, it doesn’t seem to be the case. Appear to be the case.

Jordan Heath-Rawlings Let’s talk about those categories now and I’d like to ask some specific questions here because, uh, frankly I think Canadians are looking for some, some practical advice. So as we look at, you know, what was in the report at the beginning of the year, And as we look at what we’ve seen since then, where should people be looking for savings?

Dr. Kelly Wiseman Uh, when they’re at the supermarket, you know, what’s likely to either be below inflation or even even dropping further? So there are some really interesting things that are happening in the. Not just the overall, but the actually specific categories. For example, we find that things such as pasta, things that meat, dairy, tomato, they’re, they’re really reacting very, very differently than than we would expect associated with it. So, Pasta. It used to be the sort of the mainstream, but it is still quite high. The, the level that we’re looking at in terms of prices are quite high, but it’s still a relatively inexpensive source of food. A meat is an interesting area. So it has come down in terms of sort of the food price change. In terms of inflation rates have actually started to what we call this cool off, particularly in the areas connected to, uh, poultry. So chicken and to some extent certain cuts of meat. Associated with it. Another area that’s very interesting is fresh fruits and fresh vegetables. They’re ones that over this last couple of months have shown, and that could be seasonality, that they are actually coming down. So those are sort of four particular areas that seem to be what we call softening or slowing down and showing some of these, you know, lower, uh, increases with it versus something like, say for example, bakery dairy. Edible fats, uh, oils, those are still ones that the price inflation in those categories is still very strong. When you look at the first four months of this year, you know, you, you estimated to me, you know, 14 to $15,000, uh, per household, up 1000 from last year.

Jordan Heath-Rawlings Based on what you’ve seen so far in the first four months of the year, is that still accurate? Would you revise it upwards or downwards?

Dr. Kelly Wiseman I would suggest that we are going into some form of seasonality. So because we’re in these summer months and where we are sourcing our fruits and vegetables and some of these other products, that we will continue to see this softening and, and truly that’s what our models have been telling us. Softening between that sort of made all the way to sort of the fall. But then there’s every likelihood that there may be either an increase or a, at least a, uh, you know, leveling off. In other words, we’re not gonna be seeing it going from six, and then the next one is four, and then two, we’ll just see it sitting at sort of four and holding at that particular level. That’s generally, and, and of course, it, it’s very dependent on the kind of things that are happening, you know, in the world that the effects associated with these.

Jordan Heath-Rawlings That’s the last thing I want to ask you about, which is, you know, as we understand all the factors that are in play here, we cover global issues, uh, pertaining to Canada on this podcast. And if there’s one trend I’ve noticed, it’s the two of the factors that you’re citing climate change and, you know, geopolitical events. Both of them have been trending in the wrong direction for a little while, and both of them sadly appear to continue to trend in the wrong direction. So I guess, you know, You’re used to looking at it in late in one year and trying to predict the next, as you look at, at the next five or 10 years, like is this going to be a steady strain on the food supply system and are we likely to see, you know, if not spikes from inflation, just gradual price increases?

Dr. Kelly Wiseman Yeah. I think the way to look at that is to go, again, back to those fundamentals. If we look at the fact that it’s not what we’re running short of food, it’s not that that, you know, we don’t have the production base. It is very much connected to this supply chain and supply and demand, cost of labor, uh, cost of energy, cost of maintenance factors. But if we bring in, as you noted, the climate effect and the geopolitics associated with it, those were ones that will give a lot more volatility. It used to be, when we talk about climate effects, it used to be, oh, they happen once in a while. There’s some volatility. We call that business risk. You know, uncertain. Difficult to predict, but they’re becoming much more expected. You know, we saw that in BC with our floods. They see it in California with their wildfires and snow. The these, these things will have a big impact. They will have a strong impact on our food production, but also therefore our food price inflation. So we’ll expect to see that somewhat regularly. What isn’t clear though, is how long the effects are. Don’t forget, we have this global market, so we have something that happens in BC or something that happens in California. But we can also have, getting our food from Mexico, we can get it from, you know, Florida, where that isn’t a factor. So that’s a good thing about being in those, that particular, uh, in terms of a global market, one of the elements I think that’s very important to consider for. Price inflation. Future food prices is policy changes connected to climate. So for example, greenhouse gas, carbon taxes, uh, factors such as fertilizer, bans, methane, gas, and livestock. Sustainable practices that businesses are going to be required to take on things such as food waste, packaging, uh, areas of those that are very important because those are fundamental and important policies. Will be in place over the next number of years that will impact cost of production. So that will be an important one for us to note, consider, and follow. We’re talking about prices and connecting to this climate change effect, so that’s one part of it. Geopolitics, absolutely. We saw that, you know, right at the beginning when the idea that, Ukraine, they were not gonna be able to either produce over a period of time or we can’t get the grain out of there. And of course there was an impact connected to the future prices, but what we also saw is that we were wondering if that, how strong that link was between. Those particular say fertilizer, chemical, uh, and the limited, you know, access to the production was to the long-term prices. And what we found is that those prices went up and yes, we had a spike in the future prices, then they went down. But our food prices didn’t. So what that means is that there is an impact, but they’re not the long term impact. I wanna ask you just one more thing, and that’s what’s surprised you the most about food prices over the past several months in Canada.

Jordan Heath-Rawlings What’s, uh, what’s made you really raise your eyebrows?

Dr. Kelly Wiseman I think the, uh, biggest thing that has made me raise my eyebrows for sure is the link between.Food price inflation and overall inflation. That used to be a very strong connector associated with it. Connector in the sense that would one, move, the other move. But there is definitely this level of, of a connect and what that means for those of us who are in this area of prediction and forecasting, it makes it much more difficult. Our models are highly based on the fact that history predicts where we’re going, you know, the future. If we have this disconnect where the inflation is not, you know, highly correlated, then there’s other elements that are becoming difficult to define within there. Dr. Weisman, thank you so much for this.

Jordan Heath-Rawlings You’re very welcome.

Dr. Kelly Wiseman And take a look at the actual report itself. There’s lots of really good information about Futura Greenhouse gas policies and, and prices and other elements. But thank you very much for the invitation, and for the time.

Jordan Heath-Rawlings Dr. Kelly Wiseman of the University of British Columbia. That was the big story. You can find, as I mentioned in our show notes, the link to the Canada Food Price Report for 2023, and you can find our previous episodes on grocery prices at the Big Story podcast ca. You can talk to us anytime on Twitter at the big story, fp or via email hello at the Big story podcast.ca. Thanks for listening. I’m Jordan Heath Rowlings. We’ll talk tomorrow.