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Food inflation: It's all about what's on your plate

Higher gasoline prices mean that even discount chains have been squeezed.

Glenn Lowson/glenn lowson The Globe and Mail

A couple of week ago, I blogged on food inflation in Canada, noting that, so far, food prices are not galloping higher like in other countries. Part of the reason is the aggressive expansion of chains like Wal-Mart, which are causing competitors to slash prices.

Readers did not agree. Official numbers may show that food prices are up a scant 1.7 per cent from a year ago, but that hasn't been the experience of many people looking at their grocery bills in horror.

Given the experience of rising food prices the world over -- and the pressure it is putting on households, particularly in emerging markets -- it seems well worth taking a deeper dive into what's going on in Canada.

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First of all, changes in food prices are not uniform, and inflation varies according to what you consume. If a large part of your diet relies on ham, or bacon -- prices have surged 8.6 per cent from a year ago. Prices for sugar and confectionery have soared by a similar amount.

It's a different story if consumption relies more on produce -- tomatoes and lettuce prices are about 21 per cent lower than a year ago -- or on fish, which has also gotten cheaper compared with year-ago levels.

Inflation may also differ according to incomes. The poor in Canada -- who already spend a greater proportion of their incomes on necessities -- are seeing a faster rate of food inflation, according to research by social services consultant John Stapleton. That's because they typically rely on high-calorie items that don't quickly perish -- like grains and processed meats, which are also more widely available at convenience stores. As the accompanying chart shows, those are the very areas where prices have risen the most.

The poor "often cannot access supermarkets, sometimes don't have access to secure cooking facilities, adequate freezing and refrigeration space," he says.

Low-calorie foods are rising the least, while high-calorie items, which include fast food, are advancing the most, says Mr. Stapleton, who holds the innovation fellowship at the Toronto-based Metcalf Foundation.

Secondly, Canada is not immune. Prices for some goods -- like sugar -- are already heating up. And a growing number of economists and retailers expect higher prices this year.

Rising commodity prices will boost food inflation in Canada to about the 5-per-cent mark later this year, Capital Economics said last week (though it expects the surge will be temporary).

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Typically, there's a 10-month lag between food prices at the commodity level and those at the consumer level, Bank of Montreal noted. "If past relationships hold, the recent runup in commodities will lift Canadian food prices by about 6-to-7 per cent by the end of 2011," it said on Jan. 26. "The strong Canadian dollar may help dampen that a bit, but don't expect major relief on that front."

Grocers are getting ready to hike prices. Metro Inc., Canada's third-largest grocer, has said it expects to boost prices in the next month or two, in areas like bread, pasta, rice, oils and coffee, because suppliers are hiking rates in the face of rising commodity costs.

Canadian food inflation is nowhere near that of India, where food prices such as onions have skyrocketed 16 per cent. That said, it's more than likely that a growing chunk of Canadians' household budget will go to putting dinner on the table.

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About the Author

Tavia Grant has worked at The Globe and Mail since early 2005, covering topics from employment and currency markets to trade, microfinance and Latin American economies. She previously worked for Bloomberg News in Toronto and Zurich, writing on mining, stocks, currencies and secret Swiss bank accounts. More

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