Food prices on the way up, analysts predict

3/06/2011 13:47:08 PM

Brace yourself for a little sticker shock at your local grocery store.

That’s the message from analysts as Canada’s major grocers are hinting they may pass on rising commodity prices and other costs to consumers.

In the short term, shoppers could see higher prices for breads and baked goods, given the rising price of wheat. And sustained increases in the cost of food commodities are expected to trickle down to every aisle of the grocery store by year’s end, say analysts.

Kenrick Jordan, an economist at BMO Capital Markets, said there’s always a lag between higher commodity prices and consumer food prices, so shoppers should expect a five- to seven-per-cent jump in consumer food prices.

“Those are the numbers we’re looking at,” Jordan said. “We’re not there yet.”

Fierce competition in the grocery sector with Walmart Canada’s entry and a strong Canadian dollar could temper prices, but a stronger economy “is going to be supportive of perhaps a little stronger prices,” said Jordan.

“All we could say is based on the historical relationship, this is what we expect.”

Krishen Rangasamy, an economist at CIBC World Markets, wouldn’t put a number on it, but said recent history shows food prices are going to continue to rise.

“In 2008, initially our food inflation was lagging well below the United States, but it caught up and we saw a big increase,” Rangasamy said.

“Higher input costs are eventually passed on to customers. And we see the Canadian dollar softening a bit by mid-year and those affect fresh fruits and vegetables, so that also may have an impact of pushing higher food inflation in particular.”

Rising fuel prices and uncertainty in oil-producing countries like Libya are only compounding the situation, says David Wilkes, senior vice-president of the grocery division at the Retail Council of Canada.

“It’s difficult to predict with certainty around specific cost increases or specific changes people will see on grocery shelves. I do think consumers should anticipate that we’re entering into an inflationary period that is global in its scale. It’s going to be very difficult not to be immune from it within the Canadian market,” said Wilkes. Canada’s highly competitive grocery sector can only shield food shoppers from higher prices for so long, he added.

“The reassurance, if you will, is the competitiveness of the industry. But if commodity prices are going up ‘X’ per cent, it’s difficult not to see those reflected in the shelf prices.”

For their part, Canada’s major grocers — including Loblaw, Sobeys, Metro Inc. and Walmart Canada — declined Friday to comment on possible price hikes.

Their response came a day after the Weston foods division of George Weston Inc. announced the company is increasing the price of its bun and bread products by an average of five per cent, beginning next month. This means retail grocers will have to pay the baked goods giants more for products sold under brands such as Harvest Country bread, Wonder Bread, Weston and D’Italiano — and decide whether to pass on the difference to shoppers.

“The rationale for the increase is all of our major ingredients for bread, which include wheat, edible oils and sugar, each ... are up more than 35 per cent over 2010 levels. Energy costs are also up significantly over last year, driving up transport as well as packaging,” said Jeff Wilson, George Weston’s senior vice-president of investor relations.

“And so while we’re out to our customers asking for a price increase, whether it holds is really up to our customers, the retailers of Canada.”

During a CIBC World Markets conference last week in Toronto, Bill McEwan, chief executive at Sobeys, hinted at the competing pressures facing the retail grocery sector.

“We are seeing signs of balanced inflation starting in which retail prices rise in step with manufacturer prices and the general cost of doing business,” he said. “There appears to be an appetite for that to happen, but we shall see.”

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