Want to minimize inflation in your grocery bill? Try prawns instead of pasta

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Few Canadians would think of loading their grocery carts with shellfish in times of high inflation. But seafood has seen some of the smallest price increases over the past several years.

As of last month, the price of shrimps and prawns was up just 10 per cent compared with June, 2017, according to Statistics Canada. By contrast, low-cost food like pasta are more than 30 per cent pricier than six years ago.

Of course, it’s still cheaper to eat pasta than prawns. But pasta fans likely have seen their grocery bills increase – or their pasta boxes shrink – much more than seafood aficionados.

Why price hikes have hit modest pantry staples such as macaroni, while largely sparing some fancy delicacies such as crustaceans, is a mystery emblematic of the trends that have some experts scratching their heads over food inflation in general.

Arguably, the most urgent puzzle is why the decline in food inflation is so stubbornly lagging the overall Consumer Price Index (CPI).

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While Canada’s annual rate of inflation fell to 2.8 per cent in June, the price of food bought in stores was still 9.1 per cent above what it was a year earlier.

Food, like gasoline, is a notoriously volatile component of the CPI. Severe weather such as floods or droughts can cause sharp, short-term variations in the prices of certain foods that make it harder to detect longer-term inflation trends.

But food inflation matters: It’s one of the areas where consumers, especially lower-income households, feel the sting of higher prices the most. And the end of sharp price increases at the grocery store may be key to restoring Canadians’ expectations of stable prices.

So why is food inflation still so high?

There has been much attention lately on concentration in the retail grocery industry. A recent study by the Competition Bureau of Canada found that more competition in sector could lead to lower prices. But high food inflation is a widespread problem well beyond Canada’s borders.

Another possible explanation is that higher interest rates don’t affect consumer demand at the grocery store as much as they impact other kinds of buying decisions, says Michael von Massow, a professor in the department of food, agricultural and resource economics at the University of Guelph.

The Bank of Canada has increased its trendsetting interest rate from 0.25 per cent to 5 per cent since March, 2022. Higher borrowing costs put pressure on both households and businesses to trim spending.

But when it comes to consumers, “you can put off the purchase of a new TV or a new computer or a lot of things,” Dr. von Massow said, but “you can’t put off the purchase of food.”

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Another question is how much of the current bout of food inflation can be chalked up to supply.

Russia’s invasion of Ukraine, a war that affects two of the world’s major suppliers of wheat, has contributed to higher food prices globally. It also created knock-on effects, with countries such as India and Malaysia limiting their own exports of certain agricultural goods to protect domestic consumers from food inflation, Dr. von Massow said.

In Canada, grocery shoppers will probably enjoy a brief reprieve from food inflation in the summer and the fall, as locally grown produce hits the supermarket shelves, he said. However, Russia’s recent withdrawal from a deal that let Ukraine ship grain exports through the Black Sea likely spells further price increases, he added.

But a deeper look at the data shows that food inflation has outstripped overall inflation in Canada for the past 20 years. The gap between food CPI and the comprehensive measure of CPI opened up around 2006 and 2007, a period that saw a price boom for a variety of agricultural commodities, from cereals to oilseed.

What British magazine The Economist dubbed “the end of cheap food” has been attributed to rising food demand from increasingly richer consumers in Asia, as well as high oil and fertilizer prices, among other factors.

Curiously, though, the food price gap kept getting gradually wider in the decade that followed. The trend persisted despite fluctuations in agricultural commodity prices, said James Vercammen, a professor of food economics at the University of British Columbia.

The past few years have seen another sharp widening in the gap, starting with the run-up in food prices during the pandemic, a trend that’s also on display in U.S., Europe and as far away as Australia, according to Prof. Vercammen.

What’s behind it is still “a bit of a mystery,” he said.

Among the factors Prof. Vercammen points to are increasingly complex food supply chains, which may have led to a domino of higher costs during the pandemic being passed on to consumers.

The pricing power of food manufacturing giants may also be linked to steep food cost increases, he said.

What happened with the price of shrimp and prawns points in that direction as well. Inflation for seafood, in general, has been remarkably tame over the past 20 years. It lagged overall inflation for most of the period between 2000 and 2015 and has staged only a modest acceleration since then.

Seafood doesn’t require much processing, which means simpler supply chains. And production and distribution isn’t dominated by large multinationals, Prof. Vercammen said.

“It tends to be smaller firms that are managing it rather than big guys.”

Methodology

This calculator uses Statistics Canada data that tracks the average retail prices of a range of products commonly purchased by Canadian consumers. The average prices are calculated with scanner data obtained directly from the retailers. Due to factors including product rotation, quality and quantity changes and shifting consumer preferences, using average retail prices for comparisons over time has limitations. For a precise measure of price changes over time, please refer to StatsCan’s CPI. The Globe and Mail would like to thank The Measure of a Plan, a Canadian financial literacy website, for inspiring and helping with the creation of this tool. Head over to TMP for more ways to analyze your food spend and find ways to save.