Canadian households are feeling the pinch of food inflation more acutely than their US counterparts, according to TD Securities senior economist Leslie Preston. Preston notes that food prices in Canada have risen at twice the rate of headline inflation in recent months, leading to a palpable impact on consumer sentiment. She believes changing perceptions of food inflation will be difficult for policymakers in the short term for two key reasons.
Firstly, grocery bills constitute a larger proportion of Canadian household budgets compared to those in the US. Groceries account for 11 per cent of the Consumer Price Index (CPI) basket in Canada, compared to just 8 per cent in the US. This difference means that higher grocery prices have a more significant impact on the financial well-being of Canadian families, particularly those with lower incomes. Preston highlights that the lowest 20 per cent of households by income allocate 14 per cent of their budgets to food, while the top 20 per cent spend only 10 per cent.
Secondly, Preston points out that the current level of food prices is unlikely to decrease substantially. While economists and policymakers may emphasise a flattening of inflation as a positive development, consumers tend to remember previous, lower prices. It will take time for the shock of recent price increases to subside and for the higher price level to become normalised, even if inflation slows.
The Bank of Canada is anticipated to maintain its key interest rate at 2.25 per cent following the conclusion of its meeting, with the decision expected to be announced on Wednesday (Thursday AEDT).
