greedflation

Rising food prices: inflation or “greedflation”?

Food, whether it is in the grocery store or in a restaurant dining room, is significantly more expensive than it was a year ago. While general inflation, as well as the lasting impacts of COVID-19 and the conflict in Ukraine, have driven this trend, some are placing blame on grocery stores and other sellers for fueling “greedflation”.

Food has been one of the worst-affected sectors by price rises in recent months. In the U.S., the food inflation rate in June was 10.4 per cent, a new 40-year high, according to The Associated Press, and Bloomberg reports that U.S. food prices rose at the fastest annual pace on record last month.

In Canada, inflation numbers for June are due on July 20. In May, the Canadian inflation rate hit 7.7 per cent — its highest point since 1983. Grocery bills were up 9.7 per cent and total food costs up 8.8 per cent since May 2021.

Restaurateurs fighting several battles

Restaurants in all segments are feeling the pinch, especially when it comes to stocking items like beef, poultry, eggs, dairy, and oil, all of which continue to rise in price.

In the U.S., flour prices increased by 5.3 per cent in June, the prices of butter and milk have soared by 21.3 per cent and 16.4 per cent respectively year-over-year, and chicken is up 18.6 per cent annually, reports Food Dive.

For restaurant operators, there are more than just food costs to bear in mind, though. U.S. wage rates are up about 13 per cent over the past year, according to Restaurant Business, driven by a host of factors.

That has driven the need to raise menu prices. U.S. restaurant menu prices hit a new 40-year high in June, up 0.9 per cent from May, as operators continue to adjust to protect their bottom line. Full-service menu prices have risen 8.9 per cent, while limited-service prices are up 7.4 per cent.

Grocery prices soaring

Grocery stores, too, are experiencing pain: The Canadian Press reports that Canadian food suppliers are once again issuing notices to grocery retailers about upcoming price hikes in a year that has already seen nearly double-digit increases in food costs.

Sylvain Charlebois, an industry expert who is Director of the Agri-Food Analytics Lab at Dalhousie University in Halifax, NS, suggests that the good news is that “we believe food inflation will peak in Q3” of 2022.

For now, though, there is plenty of bad news.

In the U.S., food-at-home prices rose 12.2 per cent over the past 12 months, the largest 12-month increase since April 1979.

Food is becoming less and less affordable for Canadians, too, in both grocery stores and restaurants. There are some factors still yet to take effect, such as the rare second price hike of milk this year, which will see farm gate milk prices go up 2.5 per cent on Sept. 1.

“Greedflation”?

However, dairy processing companies appear to be tacking on their own increases above that level, reports The Canadian Press.

Lactalis Canada, for example, has warned of an average national market increase of five per cent this September, a rate it said that takes into account the CDC pricing increase as well as “significant inflationary costs” the company is facing. Saputo Dairy Products Canada and Arla Products Canada have both also said they will implement price increases in the five per cent range, depending on the category, spurred by rising costs to the company at each stage of the production and supply chain, according to Canadian Grocer.

These price increases show how regulated dairy price hikes are compounded by additional price increases throughout the supply chain, said Gary Sands, SVP of public policy with the Canadian Federation of Independent Grocers. “The timing of the increases almost seems like they are piggybacking on top of the regulated increases. The net effect is to further exacerbate the issue and concerns around affordability.”

However, can that be fairly considered to equate to “greedflation” or price gouging?

Charlebois writes in Retail Insider that accusations of gouging in the food industry have reached an all-time high. According to a recent survey, 68 per cent of Canadians believe food corporations are taking advantage of the inflationary cycle to increase prices.

He adds that, given the intensely delicate nature of the (particularly fresh) food supply chain, grocers have been desperate to get ahead of the market trends.

Anthony Fuchs, vice-president of communications for Food, Health and Consumer Products of Canada, an industry group representing food manufacturers, said the vast majority are experiencing higher to significantly higher cost increases due to “a perfect storm of external factors” and all are projecting costs to continue rising throughout 2022.

Ultimately, Charlebois asserts that any evidence of “greedflation” in food retail in Canada is weak at best, although some prices in some food categories have behaved unreasonably in recent years. “The last thing processors want is to become a scapegoat and to be blamed for higher food inflation,” he said.

Better times ahead?

Charlebois warns that there may still be a worse situation to come in the short term, something that may be spurred by the Bank of Canada raising the benchmark interest rate by a full percentage point in an attempt to mitigate inflation. The increase marks the largest single jump in the bank’s key rate since 1998.

However, he is cautiously optimistic that things will get better before too long.

“We’re expecting food inflation to peak between now and the end of September,” he told the Canadian Press. “It may actually go north of 10 per cent before things start to calm down.”

In Retail Insider, he writes that food inflation will peak soon in Canada. If they rise in the meantime, it will be “at a much slower pace in the coming months”.

It’s important, says Charlebois, to keep in mind that food inflation is a normal economic phenomenon. However, in recent months, it has undoubtedly been unsustainable for many families. Food inflation’s ideal rate is between 1.5 per cent and 2.5 per cent, he notes, which is what has generally been seen year-over-year until 2021-22.