Grocery prices have been skyrocketing and we need to get to the bottom of this: Jagmeet Singh
Canadian consumers are being squeezed at both ends as higher interest rates impact shelter costs and food affordability, according to Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University.
On Wednesday, the Bank of Canada raised interest rates for the sixth-straight time. The central bank hiked its benchmark overnight lending rate by 50 basis points to 3.75 per cent, which was less than the 75-basis-point hike expected by the majority of economists.
Charlebois said this hike will impact food affordability and how much money Canadians can spend on groceries.
“With hikes, food affordability is being compromised on the backhand, as many households will have less money to devote to food, compared to just a few months ago,” Charlebois said over email on Wednesday.
“Higher interest rates will impact shelter costs for many Canadians, another necessity of life. So consumers are now squeezed from both ends of the food affordability continuum.”
Charlebois said this interest rate hike was “very much about our currency” and is “good news for food traders.”
“As we get closer to winter months, we need a stronger dollar for our food importers to keep prices lower for certain sections of the grocery store, mainly produce,” he said.
DOWNWARD PRESSURE ON PRICES
In a press conference on Wednesday, Carolyn Rogers, senior deputy governor at the Bank of Canada, said food retailers have been able to pass on higher input costs to consumers.
But with additional agriculture expenses starting to fall, she said they’ll be watching to see if the price declines are reflected at the grocery store.
“The most important point we can make is that the environment that we're in, an environment of excess demand and high inflation, is the type of environment where retailers including food retailers are most able to pass through pricing increases to consumers,” Rogers said. (can you double check this quote?)
“So our goal of getting them, the excess demand out of the economy, bringing inflation down, will help to restore the competitive pressure and will prevent retailers from just passing through all the costs and will bring the competition back. That'll put downward pressure on prices.”
CANADIAN DOLLAR IMPACT ON FOOD PRICES
As we approach the new year, Charlebois said his biggest worry is how the Canadian dollar could impact food prices.
He added that issues with supply chains and higher commodity prices are starting to ease, and that the dollar could become a main “driver for higher food prices in months to come.”
“The CPI (consumer price index) for September did indicate that our dollar was already a factor in food retail,” he said.
Last week, Statistics Canada reported CPI was up 6.9 per cent in September from a year ago, which was higher than economists predicted.
The government organization said food inflation hit its fastest year-over-year pace since 1981, with prices climbing 11.4 per cent compared to a year ago.
The Bank of Canada’s last interest rate announcement for 2022 is scheduled for Dec. 7.
WATCHING FOR U.S. FED DECISION
The U.S. Federal Reserve is set to make its next interest rate decision on Nov. 2.
On Sept. 21, the U.S. central bank raised rates by 75 basis points for a third straight time and signalled more aggressive hikes down the road.
Charlebois said that the U.S. Federal Reserve’s decision next week could have a big impact on food prices in the months ahead.
“The U.S. Fed’s decision next week will be key, and will have an impact on our own currency, yet again,” he said.
“If our dollar drops further, we could see grocery prices continue to increase in months to come.”