Food prices taking their economic toll

JOHN INTINI May 14 2007

Food prices taking their economic toll

JOHN INTINI May 14 2007

Food prices taking their economic toll

BY JOHN INTINI • They don’t make it any easier to swallow, but experts have all kinds of explanations for why your grocery bill is so high: a cold snap during growing season in the U.S. led to massive price hikes for fruits and vegetables; the green movement’s love affair with ethanol is threatening to put a squeeze on corn supplies; droughts from Europe to Australia have sent the price of wheat skyrocketing; and a more varied appetite among those in developing countries has put more on the demand side.

The bottom line: it’s getting more expensive to be in the food chain. And many major

manufacturers such as Kellogg, desperate to maintain profit margins, have hiked their prices on a wide range of food items. In fact, the prices across every major food group are on the rise: dairy (up 4.8 per cent from last year), bakery and cereal (3.7), fruits (9.4) and vegetables (11.4). “In the last few months we’ve seen things really begin to accelerate,” says Douglas Porter, a deputy chief economist with the Bank of Montreal. “We don’t see them coming down—you just might not see them accelerating further.” BMO predicts that food prices will increase by a total of 4.1 per cent in 2007 before climbing by another 44 per cent next year.

Although economists usually ignore food prices when discussing inflation—claiming that they’re too volatile an indicator—even the feds are taking a serious look at what’s happening at grocery-store checkouts. When the Bank of Canada released its Monetary Policy Report last week, governor David Dodge pinned much of the blame for higherthan-expected inflation on rising food and energy prices. “These are prices people face every day and groceries account for almost 12 per cent of the consumer price index,” says Porter. “It’s significant. That’s a bigger weight than, say, energy products, which have tended to dominate the headlines on the inflation front in recent years.” M