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Canada’s food prices offer a taste of inflation to come

For a taste of good, old-fashioned inflation, check your grocery bill.

Although Statistics Canada's consumer price index says food prices have fallen a bit in the past year, there are indications from another source that the cost of some grocery items has increased a lot.

"If Canadians are thinking there's an inconsistency between what's being reported by CPI and what they see in grocery stores, there may be some truth to that," said Sylvain Charlebois, dean of Dalhousie University's Faculty of Management and lead author of a report to be released Monday on Canadian food prices at mid-year. Dal is recognized as an expert on food prices.

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Bank of Canada data show the 50-year average annual inflation rate is 4.1 per cent, while the average since the global financial crisis started about nine years ago is 1.6 per cent. There's been a lot of talk lately about how interest rates could rise late this year or early next year as a result of revived economic growth. Higher inflation could be part of the package if the economy keeps its momentum.

Between increased borrowing costs and higher inflation, many people may find a stronger economy makes them poorer. Let's hope for better wage growth to offset these costs.

Officially, the overall cost of living was 1.6 per cent higher in April compared with the same month a year ago, while food prices alone fell 1.1 per cent. Statistics Canada found the most dramatic price declines in eggs and fresh fruit and vegetables, all down 5 to 6 per cent on a year-over-year basis.

But grocery price spot checks by Prof. Charlebois's team show the cost of food has risen lately in some cases. At the beginning of the year, the group recorded the price of 100 specific food products from stores that may not normally be included in the CPI. Sample finding: Blueberries, lettuce, pears and broccoli were up more than 9 per cent over January as of mid-May.

Meat products were generally 11-per-cent more expensive than they were in January, although the Dalhousie report adds that the arrival of the summer barbecuing season may have had an impact here. Dairy and fish products were down in price, but overall food costs rose more than 5 per cent in the past five months.

"We suspect that food inflation in Canada right now is north of 5 per cent for sure," Prof. Charlebois said. Beneath this national average are stagnant prices in Alberta and rising prices in Ontario.

There are other pockets of the economy where inflation is already trending higher. Data from DesRosiers Automotive Consultants show that the average selling price of a car in Canada has been rising steadily since 2012 and last year jumped 4.2 per cent. Cars get more and better equipment from year to year, so the price-to-value ratio may not be out of whack. But both cars and food show how inflation can be a factor even when the overall cost of living is rising only modestly.

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The frustrating part of food inflation is that it affects so many people, yet isn't officially acknowledged as a problem. When I asked people where they felt inflation most recently on my Facebook personal finance page, groceries came up most often. "Groceries are a steady creep," one person wrote. "The incredible shrinking package … combined with higher pricing means I am getting poorer quality for a higher price," said another.

Prof. Charlebois has a theory about why food prices as tracked by Statistics Canada are so quiet. Grocery companies are worried about their image when food prices soar. To minimize bad publicity, they're raising prices on items not included in the official inflation tally.

"These guys have mastered the ability to countervail the CPI," he said. "They don't want to be labelled as consumer gougers."

One of the contributors toward higher food prices is weakness in the Canadian dollar, which makes goods imported from the United States more expensive. Speculation about an improving economy and rising interest rates has helped pump the dollar up a bit lately. Barring more generous wage gains, a stronger dollar may be our best hope for containing the inflation threat to our finances.

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About the Author
Personal Finance Columnist

Rob Carrick has been writing about personal finance, business and economics for close to 20 years. He joined The Globe and Mail in late 1996 as an investment reporter and has been personal finance columnist since November 1998.Rob's personal finance columns appear in The Globe on Tuesday and Thursday, and his Portfolio Strategy column for investors appears on Saturday. More

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