This column by Armine Yalnizyan was originally published by the Toronto Star on Wednesday November 16, 2022. Armine is a Contributing Columnist to Toronto Star Business featured bi-weekly.
Everyone wants prices to stop going up. You do. I do. The Bank of Canada sure does.
Inflation has dipped from its June peak of 8.1 per cent, but it’s parked for the last two months at 6.9 per cent, a level not seen in decades.
Then, inflation was driven by price shocks and power plays by oil cartels. Now, though initially driven by pandemic-related backlogs in production and shipping, price increases are due to supply shortages in oil and gas, commodities, and, increasingly, labour.
Throughout this crazy year, an inflation-obsessed nation has asked unanswerable questions. When will this end? Are the Bank of Canada’s interest rate hikes making things better or worse? What if basic costs — food, rent and fuel — don’t fall? Will workers pushing for wage catch-ups bake in even more inflation?
Let’s begin where inflation takes its biggest bite from our daily budgets — in the kitchen. Step into mine while I cook up my most decadent meal of the year: my sweetie’s birthday feast, served with a side of economics.
My line of work has its hazards: creamy sauces conjure thoughts of dairy marketing boards; sizzling meat, of labour shortages; pasta, of global supply chains.
This meal has it all, starting with crusty bread and Caesar salad; advancing to fettuccine alfredo and grilled steaks; and ending with a flourish of Brutti ma Buoni (Ugly but Good) cookies — a diabolically addictive confection of meringue, hazelnuts and chocolate — served with a shot of strong coffee. Yum!
If I bought every ingredient for this menu, I’ve calculated the bill would total about $125. That’s roughly $25 more than when I bought the same items at the same store last year.
I’ll use Statistics Canada’s updates on prices for this exercise, which confirm this splurge is going to bite, no matter where I shop. Food inflation has outpaced overall inflation for 11 months now. The reasons behind these price spikes vary from product to product.
Exhibit A: My crusty bread is up 17 per cent; my pasta, a whopping 45 per cent.
Historically, staples like bread and pasta prices don’t vary much, but over the last year these prices have risen more than many other food items because there’s a global shortage of flour.
Russia’s invasion of Ukraine earlier this year reduced the global supply of many basics. Together, the two countries normally ship 30 per cent of world wheat exports. Russia is also the top exporter of nitrogen fertilizers and the second biggest supplier of phosphorus fertilizers. Less fertilizer, lower yields; lower yields, higher prices.
True, Canada is poised for a bumper crop of wheat this year. We also supply 12 per cent of the world’s fertilizers. Spiking global commodity prices mean Canadian producers (and governments) will score big windfalls in revenues; but Canadian consumers will eat the costs because the higher global commodity prices fuelling producer gains underlie the prices of everything we eat.
Exhibit B: The lettuce in my Caesar salad costs 30 per cent more than last year.
We’re used to the price of fruits and vegetables see-sawing up and down season to season, but prices have spiked since the onset of the pandemic because there aren’t enough people — mostly temporary foreign workers — to sow, harvest and truck the crops. Soaring fuel costs also increase price tags on our produce, often imported from afar.
Stir in frequent extreme climate events, including droughts, floods, fires and hurricanes that have slashed crop yields. Lower supplies, higher prices.
My Caesar salad dressing is amazing, if I do say so myself, but I ration the use of costly olive oil. Statistics Canada tells us food oils are up 22.7 per cent, again mostly driven by Russia’s invasion of Ukraine. These two countries account for a whopping 75 per cent of global exports of sunflower oil. Heat and drought saw Spain’s production of olive oil fall by 40 per cent so prices will rise further. Less supply, higher prices.
Exhibit C features a sauce laden with butter, cream and Parmesan cheese. Butter is up 20 per cent, fresh milk 11.5 per cent, and cheese is up 10 per cent. Canadian economists love to hate our dairy and egg marketing boards, yet it’s thanks to them that these mostly locally produced items have shown only modest price increases. However, when costs of feed, medications, equipment and the veterinary needs of herds go up, they tend to stay up, not come back down.
Getting to the meat of the matter, Statistics Canada says beef prices are up only two per cent from this time last year, but up 16.5 per cent from two years ago. That’s because meat-packing plants shut operations at the beginning of the pandemic, due to illness and shortage of workers. Production has since resumed, but prices haven’t snapped back to pre-pandemic levels, largely due to the same factors driving dairy and egg price increases.
Finally, the sweet finale: eggs (up 14 per cent), sugar (up 12.5 per cent — but 25 per cent higher than two years ago), chocolate (up 17 per cent — Statistics Canada doesn’t track chocolate prices, so that’s my own item-to-item comparison). And hazelnuts! Lots of hazelnuts (which Statistics Canada also doesn’t specifically track, but cost me the same as last year).
Sugar costs more because droughts are hurting sugar-beet production in the U.S.; and Brazil, the world’s top sugar exporter, is diverting sugarcane to biofuel production, cashing in on a surge in ethanol prices due to the global energy crisis. Chocolate costs more because even though this year’s harvest of cocoa in Africa rebounded after last year’s bust, the world’s biggest chocolate manufacturer — Barry Callebaut, supplying most of the retail names you know — temporarily shut its biggest factory due to a salmonella outbreak.
Today’s menu is as rich in inflation as calories. Right about now I could use a cup of strong coffee (up 16.5 per cent), with a cookie as consolation prize.
I’m making this meal from scratch, but Canadians have been buying more prepared foods in grocery stores since the pandemic began.
Making fresh and frozen meals requires everything mentioned so far, plus space for production (real estate costs such as utilities — heat, lighting, power, insurance); packaging; marketing and distribution. That’s in addition to the cost of retail space in stores. Every stage has a markup, which explains why we pay the highest prices per weight for processed or fresh and frozen prepared foods. At any stage, the fewer suppliers, the more power they wield to push markups ever higher.
Your grocery basket likely also holds elements of price discrimination (where the seller charges different prices in different markets), shrinkflation (the consumer pays the same for less) and greedflation (where prices are raised more than what is needed to cover higher costs, simply because the seller can get away with it). I wrote more about greedflation here.
Whatever the myriad reasons for higher food prices, the real question on our minds is: Will prices ever fall again?
Next week we’ll look at the fastest rising and falling items in your budget, and what the Bank of Canada has to do with it.
Meanwhile, if you’re lucky enough to not know grinding hunger, please remember some of us won’t be able to splurge on birthday dinner this year. Give what you can to your local food bank.
Next week: Not all prices are up. What’s down, and why.