If you buy groceries at stores in the Loblaw and Metro chains, the beating you get at the cash register will not worsen in the near term.
That’s the best personal finance spin you can put on news of price freezes through the holiday season at the stores of Loblaw Cos. Ltd. and Metro Inc. If you’re starving for news of lower prices, there’s nothing here for you.
A price freeze on Loblaw no-name products and on both house and national brands at Metro offers a teaching moment on inflation. Inflation robs your purchasing power in the here and now, but the damage done to your finances lingers. Understanding what you’re up against as a consumer is essential if you want to do whatever possible to protect your finances.
Inflation is like an up escalator that usually runs in an orderly way. For reasons that we’ll debate for years to come, the inflation escalator has been running fast lately. High interest rates will slow the inflation escalator, but they’re unlikely to stop it altogether.
Temporary supermarket price freezes may also help slow inflation. But at the same time, they lock in all the price hikes we’ve seen in the past 18 months or so.
Inflation is squeezing our finances. What can we do about it?
Prices do sometimes fall in one niche of the economy or another. A broad trend of falling prices is called deflation and it scares central banks almost as much as inflation because it implies the economy is in big trouble. Consumers stop spending because they anticipate lower prices ahead, and business adjust by cutting jobs.
Prices fell briefly in 2020, when pandemic economic lockdowns were in force. Statistics Canada says prices dropped a total of 20 per cent in the early 1920s, and a total of 25 per cent during the Great Depression.
A moderate recession is expected in the months ahead thanks to the high interest rates being used to subdue inflation and slow spending by individuals and businesses. But meaningful deflation – a down escalator – is unlikely.
In any case, an overall trend of falling prices is unwelcome because it means economic misery. The problem of inflation today is that prices are growing more than incomes. With deflation, some people end up with zero income.
The cost of living was up 6.9 per cent on a year-over-year basis in September – that’s down from a year-to-date peak of 8.1 per cent in June, but much higher than the 40-year average of 2.5 per cent. Inflation between 2 per cent and 3 per cent is the ideal – it’s like the up escalator running at the optimum speed for keeping people moving without mishaps.
Food inflation in particular has been way above that sweet spot both in 2022 and in previous years. If you look at Statistics Canada inflation reports for the month of September going back to 2012, you’ll find that the cost of food exceeded the overall inflation rate seven out of 11 times.
That includes last month, when food inflation hit 10.3 per cent. On average since 2012, the overall inflation rate for September was 2.2 per cent and the food inflation rate was 2.9 per cent.
It’s been a while since people were as torqued as they are today about food inflation. The last time was probably 2015-16, when prices were driven higher by a sinking Canadian dollar and a drought in California. Remember the $8 cauliflower?
The recently announced price freezes on groceries offer brief relief from the grind of rising food prices, and an economic lesson as well. There is no end to inflation, no unwinding that takes prices back to where they once were.
The best we can reasonably hope for is a period of slower inflation where incomes have a chance to catch up and exceed the rise in living costs. There is no better inflation-fighting strategy than increasing your pay, whether by negotiating with your current employer, finding a better job or upgrading your skills.
And now, let’s put aside economic theory and talk about the real world. Loblaw and Metro: You know what helps people even more than a price freeze? Price cuts. What about choosing a few key staples that families buy and lowering prices for the next few months? Take some pain, like your customers.
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