Taking Stock for Friday, Feb. 20, 2026

Key Concepts

• Food Inflation: The rate at which the cost of food increases over time. Currently a significant issue in Canada.
• Domestic vs. Global Factors: The interplay between Canadian internal economic forces (wages, regulations) and external global events (weather, trade) impacting food prices.
• Counter Tariffs: Taxes imposed on imported goods, specifically from the US, impacting Canadian food prices.
• Gross Margins: A measure of profitability (revenue minus cost of goods) used to assess potential price gouging by grocers.
• Regulatory Burden: The cumulative impact of regulations on businesses, potentially increasing costs and hindering competitiveness.
• Food Sovereignty/Security: Canada’s capacity to produce food for its population, balancing domestic production with international trade.
• Dynamic Pricing: Adjusting prices frequently based on demand and other factors, potentially leading to price volatility.
• Resilience in the Food System: The ability of the food system to withstand disruptions and maintain stability.

Canada's Food Inflation: A Deep Dive

I. The Current State of Food Inflation in Canada

Grocery prices in Canada have risen by 30% since 2019, resulting in an average annual increase of $1600 per household. This trajectory significantly exceeds the expected 17% increase based on pre-pandemic trends. While initially tracking similarly to the US, Canada’s food inflation has surpassed that of its southern neighbour in the past year. The most substantial price increases have been observed in meat, coffee/tea, eggs, and poultry.

Despite 70% of Canada’s food being produced domestically, two-thirds of the price paid at the grocery store is attributed to domestic factors, particularly wage increases between 2022 and 2024. A weaker Canadian dollar has also contributed to higher costs for imported food. Food expenses now constitute 11% of the average Canadian budget, compared to 8% in the US, with the lowest 20% of households allocating 14% of their budget to food. Forecasts from Dalhousie University predict continued food inflation of 4-6% through 2026.

II. Identifying the Culprits: Domestic vs. Global Influences

Leslie Preston, Senior Economist at TD Bank, highlights the complexity of pinpointing the source of food inflation. While global factors like droughts and commodity shortages impact both Canada and the US, Canada’s higher inflation rate is largely attributed to two domestic factors: a weaker Canadian dollar and, crucially, counter-tariffs imposed on US imports (now lifted). Over half of Canada’s packaged food imports originate from the US, making this a significant driver of price increases.

The Bank of Canada’s research indicates that wage inflation played a more substantial role in food price increases during the pandemic, reflecting increased compensation for essential grocery workers. However, wage pressures have cooled more recently as the Canadian labour market has softened.

III. The Role of Competition and Regulation

Sylve Shallow, Senior Director of the Agri-Food Analytics Lab at Dalhousie University, emphasizes the unique structure of Canada’s food system, dominated by a handful of large players. He argues that these grocers aren’t necessarily profiteering but are instead exerting pressure on food processors, leading to increased prices throughout the supply chain. This manifests as grocers imposing extra fees on manufacturers, who then pass those costs onto consumers, creating price volatility. Gross margins for grocers have remained relatively stable, suggesting the issue isn’t direct profit-taking but rather a complex interplay of power dynamics within the supply chain.

The upcoming Grocers’ Code of Conduct aims to address these issues, but its effectiveness is uncertain. Draft 11, the current iteration, lacks strong enforcement mechanisms like fines or sanctions, raising concerns about compliance.

Pierre Patel, CEO of Crop Life Canada, identifies regulatory burden as a major contributor to higher food costs. He argues that Canada’s stringent regulations, while intended to ensure safety and quality, can hinder innovation and competitiveness, driving up costs for producers and processors. He points to the example of emissions regulations impacting fertilizer use and the need for regulatory alignment with trade partners to avoid disadvantaging Canadian businesses.

IV. Government Intervention and Future Outlook

The federal government has responded to rising food costs by increasing the GST credit for 12 million Canadians. Lisa Bishop Spencer, Executive Director of the Canadian Centre for Food Integrity, views this as a recognition of food as essential infrastructure, not merely a household expense. However, she acknowledges that the increased GST credit may not be sufficient given the growing reliance on food banks.

Bishop Spencer emphasizes the importance of addressing food affordability within the broader economic context, suggesting potential consideration of policies like minimum wage increases or a guaranteed income. She highlights the need to balance the thriving export sector with ensuring that all Canadians can afford basic necessities.

Patel advocates for government policies that encourage investment in the agricultural sector, citing Canada’s potential as a leading food producer. He emphasizes the need for a more streamlined regulatory environment and a focus on innovation to enhance competitiveness.

V. Canada’s Position in Global Food Markets

Despite its relatively small economy, Canada is a significant exporter of certain food products, including 73% of the world’s hemp seed, 28% of cranberries, and 20% of canola. This demonstrates the strength of Canada’s agricultural sector and its role in global food supply chains. However, the domestic focus remains crucial, ensuring food security and affordability for Canadians.

Notable Quotes:

• Leslie Preston (TD Bank): “Canada’s inflation being higher than the US is that both the past weakness in the Canadian dollar and these counter tariffs…being a key source of Canada’s higher food inflation.”
• Sylve Shallow (Dalhousie University): “Grocers are charging extra fees here and there…manufacturers have to absorb those extra costs…prices that you and I see at the grocery store are influenced by that cat and mouse game up the food chain.”
• Pierre Patel (Crop Life Canada): “This is an own goal situation…something that’s 100% in our control.”
• Lisa Bishop Spencer (Canadian Centre for Food Integrity): “Food is being treated as essential infrastructure now and not just a household expense.”

Conclusion:

Canada’s food inflation is a multifaceted issue driven by a combination of global and domestic factors. While global events like extreme weather and trade disruptions play a role, domestic factors such as wage inflation, a weaker Canadian dollar, and regulatory burden are significant contributors. Addressing this challenge requires a holistic approach that considers both supply-side and demand-side factors, including regulatory reform, investment in innovation, and policies to ensure food affordability for all Canadians. A key takeaway is the need for proactive measures to build a more resilient and equitable food system that can withstand future shocks and ensure long-term food security.