Another Look at Food Inflation Numbers
Statistics Canada released the food price index for April 2022 and the news continues to be concerning. Year over year food prices have increased by 8.8% with food bought in retail increasing 9.7%. These numbers are up from the March numbers which tells us that prices continue to go up. These increases are important and significant but not unexpected. It is also important to contextualize the numbers to get a better understanding of what is happening and what is coming.
Food Prices Didn't Go Up 8.8% in April
There is a common misconception that food prices went up by that amount in the month of April. The numbers are discouraging but they mean that food is 8.8% more expensive in April of 2022 than they were in April of 2021. Many of the price increases we have been talking about for the past 12 months are reflected in this number.
Food Prices are Still Going Up
While the price increase was not 8.8% in April, it was still 0.9% for the month. That represents an annual rate of over 10%. Clearly prices are still going up. The month over month numbers are always worth watching to get a sense of the short term trend. Even if the number was negative for the month of April, the annual number would have been positive because of the earlier price increases but prices people see in the store might already be going down. Understanding the distinction is important.
Lettuce was up a whopping 12.8% in the month of April and is up 28% since April of last year. That is likely due to a number of reasons. Shipping lettuce from where it is produced in the Southern US is getting more expensive due to fuel costs. Lettuce is produced quite quickly so we are likely already seeing the increased cost of fertilizer reflected in this. Supplies are tighter and those of you who have taken Economics 101 know that when supplies go down, prices go up. The pandemic has caused significant disruption in produce generally and lettuce specifically. The disruption in restaurants has made predicting demand more difficult and some lettuce has gone unharvested. While producers historically have produced in anticipation of demand, they are less inclined to produce extra because of higher costs and the potential for losses if the demand does not materialize.
Edible fats and oils are also going up more than average - 3.3% in April and 28.6% versus a year ago. Transportation and production costs are relevant here as they were with lettuce. Oilseed prices were high before the war in the Ukraine and disruptions in trade of oilseeds caused by the war have increased prices even more. Malaysia, in an attempt to keep local prices lower, restricted exports of palm oil which further put pressure on cooking oil prices.
Another impact of the war in Ukraine is the increase in the price of bread. Bread was up 2.6% in April after a similar increase in May. These prices increases are recent as we can see that the annual increase is "only" 12.2%. We know that trade disruptions caused by the war increased wheat prices from an already high starting point. Argentina, like Malaysia with palm oil, restricted wheat exports to control domestic prices which put further pressure on wheat prices which translates to bread price increases.
Some Things are Going Down
We notice the immediate price increases in the store - we know what is going up. We hear the aggregate numbers and it concerns us. As it should. But there are things that are more expensive year over year but were actually cheaper in April than the were in March.
Vegetables were, as a group, cheaper in April than in March (with the exception of lettuce as mentioned above). Vegetables are still up year over year but are starting to come down in price. We generally see this happen as we get into the summer months. Imported vegetables at this time of year come from less far away so freight charges are less and the impact of increased freight costs are less. As we get into domestic production those prices should continue to come down.
Restaurants Are Going Up - Just Not As Much
Restaurants buy food just like we do. That then begs the question why restaurant food inflation was "just" 6.6% year over year compared to 9.7% in grocery stores.
Food is just one component of what you pay for in restaurants so price increases relative to the total cost of the restaurant experience will be less. They are starting from a higher base price because of the other elements.
Restaurants have to adjust menus and so price responses may be slower. The increase from March to April 2022 was 1.5% so the adjustment might be coming now.
Restaurants can make some adjustments to menus to respond to price pressure. The choice of menu items can exploit products that are going up less in price, portions sizes can be adjusted, and less expensive protein cuts can be included.
Restaurants may be nervous about price increases as consumers just begin to back to them after two difficult COVID years.
Recommended citation format: von Massow, Michael. "Another Look at Food Inflation Numbers". Food Focus Guelph (128), Department of Food, Agricultural and Resource Economics, University of Guelph, May 18, 2022.