The slowing growth of inflation in Canada is boosting expectations the Bank of Canada will make another cut to its key lending rate, which could offer relief to indebted governments, homeowners with mortgage renewals on the horizon and borrowers with floating-rate debt.
That’s cool and all, but our snacks still cost too much.
Below, we unpack how potato chips became the poster child for consumer inflation outrage – and what brands are doing to win their customers back.
In the news
- Canadian pension funds face more pressure on real estate and private credit
- Industry experts see Ottawa signing off on Stelco takeover
- Number of federal workers hits new high in 2024, but pace of growth slows ahead of planned cuts
Up top
‘He is really capable of speaking for himself’
Chrystia Freeland is sidestepping questions about her future as Finance Minister.
In her first news conference since The Globe and Mail reported last week about concerns among senior officials in the Prime Minister’s Office over her effectiveness in delivering a positive economic message, Freeland twice avoided answering whether she had received assurances from Mr. Trudeau, saying “he is really capable of speaking for himself.”
The Finance Minister, who is also Deputy Prime Minister, said she had a long conversation with Mr. Trudeau on Friday, spent much of Saturday with him at events in the Greater Toronto Area and also travelled to Ottawa on Monday to meet with him again.
In focus
Snack attack
A bag of chips describes its consumers.Scott Olson/Getty Images
The June Consumer Price Index report showed fading pressures on several fronts, Matt Lundy reports. Gasoline prices fell 3.1 per cent on a month-to-month basis, while travel tour costs dropped 11.1 per cent.
But grocery-price increases sped up for the second-consecutive month, climbing at an annual pace of 2.1 per cent. Lundy notes that’s a far cry from the 11-per-cent annual growth in grocery prices we’ve experienced in recent years, but it’s still unlikely to have shoppers dancing in the aisles.
The CPI tracks changes in both cost and quantity, which can include the packaging sizes of potato chips. “Shrinkflation,” or in this case “snackflation,” is considered a form of price inflation.
Even when Statscan set out to educate Canadians on how shrinkflation contributes to higher inflation, the agency reached for a bag of chips.
Don’t confuse the downward slope of that chart above with chips getting cheaper. It shows the annual percentage change and just means that prices are beginning to plateau, but at what many would consider outrageously high levels. Chips cost roughly 23 per cent more than they did in 2019.
At inflation’s peak, snack prices were rising 14 per cent a year in the U.S., and just slightly lower in Canada. Consumers responded by cutting back or choosing cheaper alternatives to the big brands.
The major players in potato chips are taking notice. In an earnings call last week, the head of PepsiCo talked about why sales under the company’s FritoLay division – a portfolio including Ruffles, Cheetos, Doritos, Lays and Miss Vickie’s – fell 0.5 per cent in the second quarter, while volumes dropped 4 per cent.
There is clearly a consumer that is more challenged, and it’s a consumer that is telling us that in particular parts of our portfolio, they want more value to stay with our brands.
— Ramon Laguarta, CEO of PepsiCo
When the food fight began: Potato chip brands became the focus of consumer outrage at the onset of the pandemic as they rapidly hiked prices while also shrinking packaging.
In early 2022, PepsiCo and Canada’s largest grocery chain operator, Loblaw Cos., became locked in a chip cold war after the retailer refused to accept a price hike on Frito-Lay products. The manufacturer cut off shipments to Loblaws for two months over the dispute.
Then, during U.S. President Joe Biden’s State of the Union address in March, he took aim at chip makers (not the silicon variety; Biden loves them): “The companies think you won’t notice if they change the size of the bag and put a hell of a lot fewer – same size bag – put fewer chips in it.”
Facing pressure both financially and from the Oval Office, might lower-cost chips be coming? On the investor call, PepsiCo executives spent a lot of time talking about lowering snack prices without coming right out and saying it.
Euphemism watch:
- “We need some new entry price points”
- Tortilla chips need “some value reset” and “value intervention”
- Savoury snacks require “adjustments in value”
- There is “some value to be given back to consumers after three or four years of a lot of inflation”
If you focus your eyes on these words as though you are looking through them into the distance, you might see the phrase “cheaper chips” appear.
What we can see clearly: Consumers in Canada are getting a break in some key areas. In May, 34 per cent of the components of the Consumer Price Index, the basket of goods used to measure inflation, experienced year-over-year declines.
Companies don’t cut prices unless they absolutely have to. So these price declines are a stark sign that consumers are hitting the brakes on some items.
Hitting the brakes, or hitting the wall?
As David Rosenberg of Rosenberg Research put it after PepsiCo released its result: “Come on – once consumers stop snacking, you know a recession is on its way.”
With a report from Jason Kirby
Charted
First Nation court action could invalidate all mining claims in Ontario
A court action launched by Grassy Narrows First Nation against Ontario could invalidate all mining claims in the province, a lawyer representing the Indigenous group said – a scenario that Niall McGee reports could cause havoc for the industry. “More than 10,000 mining claims have been issued in its territory without consultation. The First Nation says that Ontario’s current staking system violates both the government’s duty to consult Indigenous peoples under Section 35 of the Constitution, and the United Nations Declaration on the Rights of Indigenous Peoples, which requires free, prior and informed consent.”
The outlook
On our radar and reading list
On the shelves: The continuing LCBO strike is boosting sales at nearby Quebec liquor stores. B.C. and Alberta, meanwhile, are toasting a new deal ending a wine tariff tiff.
On the shelves 2: Indigo is removing portraits of Alice Munro from stores but keeping her books on display.
On the shelves 3: A widespread cyberattack on Co-op stores has caused system disruptions and empty shelves across Canada.
On the shelves 4: Researchers using AI techniques have found Antarctic ice shelves hold twice as much meltwater as previously thought, a finding that could have profound implications for sea-level rise. “Machine learning allows us to use more information from the satellite, since it can work with more wavelengths of light than the human eye can see.”
Markets this morning
Gold prices hit new highs while equity markets pulled back in cautious trading following recent rallies as recent economic data have investors pinning hopes on interest rate reductions soon.
Wall Street futures were pointing lower as investors sold off megacap tech and chip shares and piled into lagging areas of the market such as small-cap stocks. TSX futures were flat after the market’s fourth consecutive record close yesterday.
Overseas, the pan-European STOXX 600 was down 0.47 per cent in morning trading. Britain’s FTSE 100 slid 0.27 per cent, Germany’s DAX fell 0.4 per cent and France’s CAC 40 gave back 0.26 per cent.
In Asia, Japan’s Nikkei closed down 0.43 per cent, while Hong Kong’s Hang Seng inched 0.06 per cent higher.
The Canadian dollar traded at 73.14 U.S. cents.