Although a ceiling has been reached and its rate of growth is decelerating, inflation in the price of food purchased from stores remains stubbornly high.
The strong surge in grocery basket prices began in 2021, peaking last January, with the price of food purchased from stores posting an 11.4% increase compared to January 2022. It thus oscillated around 11% for six months. There has been a decline since then, but food prices in grocery stores were still 9% higher in May compared to a year ago.
This fever spike is the result of multiple causes that have put upward pressure on costs throughout the agri-food chain. We think of supply chain disruptions amplified by the pandemic, labor shortages, rising wages, rising transportation costs, poor weather conditions in some regions and the fueled explosion in input and raw material costs, fueled by Russian aggression against Ukraine. Unlike past trends, many of these conditions and pressures occurred simultaneously or more pronouncedly, Statistics Canada has previously summarized.
Specifically, “the cost of raw food products is only 10% of the price consumers ultimately pay. The rest comes from processing, packaging and local transportation costs, all of which were also boosted by supply chain disruptions. These costs are relatively stable in normal times and have a mitigating effect on the prices of raw food products known for their volatility, but they have simultaneously increased over the past year,” explains Nathan Janzen, Deputy Chief Economist at the Royal Bank. Also, “consumers had, for their part, acquired greater purchasing power thanks to the savings accumulated during the pandemic, which allowed companies to transfer a greater share of these costs to them”.
But OK. All of these factors have been on a downtrend ever since. Supply chain bottlenecks began to ease in early 2022. Shipping costs and times returned to pre-pandemic levels. The Food and Agriculture Organization of the United Nations tells us that its food price index has resumed its downward trend, as the effect of geopolitical tensions subsides. The same is true for energy prices with, as a result, a certain deflation in oil prices since their peaks in 2022, despite the game of supply restrictions in which OPEC is engaged.
After posting four consecutive year-over-year increases, the farm product price index was down 3.4% in March from the same month a year earlier. Those prices are down 15% from their 2022 peak, bringing them closer to levels last seen in the summer of 2021, said Royal Bank chief economist Craig Wright.
The price index for industrial products was down 6.3% in May year on year, posting its largest year-on-year drop since October 2009. For its part, the raw materials price index fell 18.4% from May 2022, to take its biggest year-over-year decline since May 2020.
On the wages side, if growth remains strong in a context of labor shortage, “we are nevertheless beginning to identify the first weaknesses which suggest a slowdown in the labor force. The number of job vacancies continued to decline and employment fell in Canada in May, despite a record population increase,” said Nathan Janzen.
Statistics Canada said last week that the number of job vacancies fell 3.8% in the first quarter to 843,200. This is the third quarterly decline in a row from the record level of 984. 600 reached in the second quarter of 2022. The job vacancy rate—the number of job vacancies as a proportion of total labor demand—decreased by 0.2 percentage points to 4, 7% in the first trimester. This is the third drop in a row and the lowest rate since the second quarter of 2021, the federal agency added. “This shows that while labor market tensions have continued, there are signs of a gradual easing in their intensity. »
This is not without repercussions on the average hourly wage offered. It was up 5% from a year earlier in the first quarter of 2023, but at a decelerating pace compared to the 8.5% increase in the previous quarter. This is also to be seen in the perspective that part of the increase offered in the first quarter is attributable to a change in the relative composition of vacancies, which has moved from positions in lower paid professions to positions in higher paying professions.
“Calculated using a method that holds the composition of job vacancies by occupation at the average for the first quarter of 2022, year-over-year growth in the average offered hourly wage was 3.5 % in the first quarter of 2023, down from 5.9% in the previous quarter,” highlights Statistics Canada.
But the rise in the cost of living and interest rates has already absorbed all of the increase in Canadian household after-tax income in 2022. And the situation seems on track to repeat itself in 2023, which does not is not without testifying to the erosion of purchasing power.
“At first glance, it appears that every Canadian is spending a record amount on food consumption. But once inflation is deducted, there has been a decline in the “real” value of consumption per person since the start of 2021. […]. Declining purchasing power continues to dampen demand, which will help slow inflation more generally and, as a result, the rate of food price increases,” writes Nathan Janzen.
It will be necessary!