Food Price Gains Remain Elevated as Inflation Rate Ticks Higher in December

The rise in food prices continued to outstrip the overall inflation rate in December, Statistics Canada’s consumer price index showed Tuesday. 

Grocery prices in December were up 4.7% from a year ago, matching the increase in November and exceeding the 3.4% increase in the headline CPI, which ticked up from 3.1% in November.  

The increase in the December inflation rate compared to November was largely expected by economists, mainly due to the so-called ‘base-year’ effect, as the price of gasoline fell much more sharply a year ago compared to this past month. Excluding gasoline, the CPI slowed year over year, from 3.6% in November to 3.5% in December. 

With 2023 now in the books, StatsCan today also released an annual inflation review. It showed prices for food purchased from stores rose 7.8% on an annual average basis in 2023, down from the 9.8% increase posted the previous year. However, last year’s increase in food prices was still much larger than the annual average increase in the overall CPI, which moderated to a 3.9% gain last year after hitting a 40-year high in 2022 at +6.8%. 

Grocery price inflation “remained broad-based in 2023 with several contributing factors,” StatsCan said, including poor weather in growing regions, higher input costs, diseases such as bird flu and African swine fever, and Russia's invasion of Ukraine.  

Among the grocery products with the largest annual price increases in 2023 were edible fats and oils (+16.9%), preserved fruit and fruit preparations (+11.5%), bakery products (+10.7%), cereal products (+10%) and preserved vegetable and vegetable preparations (+9.7%), StatsCan said. 

On the other hand, StatsCan said the slowdown in 2023 headline inflation was led by lower energy prices, which fell 4.2% on an annual average basis following a 22.5% increase in 2022. The cooling in energy prices was led by gasoline, which fell 7.6% in 2023 after a 28.5% increase in 2022 when crude oil prices rose due to such factors as supply uncertainty stemming from Russia's invasion of Ukraine and higher global demand for travel amid easing COVID-19 restrictions. 

The Bank of Canada will make its next interest rate announcement next week. Market sentiment suggests the Bank will hold its key overnight rate at 5%, with the timing of the first potential rate cut still uncertain.