Why is inflation heating up at the grocery store again? Blame the loonie

A weak Canadian dollar is being blamed as a key culprit behind sticky inflation at the grocery store, a trend one expert says he expects to persist heading into the holidays.
While overall inflation has moderated in recent months, settling back at the Bank of Canada’s two per cent target in October, consumers are once again feeling the pinch on groceries.
The annual cost of food bought from the store rose 2.7 per cent annually last month, accelerating from a rate of 2.3 per cent in September. October marked the third consecutive month grocery prices outpaced the rest of the consumer basket tracked by Statistics Canada.
Driving those costs higher in October were more expensive fresh vegetables and fruit, which rose at annual rates of 7.3 per cent and 7.6 per cent, respectively.
Pain at the grocery store is nothing new for Canadians. As Canada grappled with decades-high inflation over the past few years, grocery prices were among the largest contributors.
Ipsos polling conducted exclusively for Global News in late August found that 43 per cent of Canadians are worried they might not have enough money to feed their families.
Prices on food bought from stores rose over 20 per cent over the three years between July 2021 and June 2024, according to StatCan.
That rapid rise helps to explain why Canadians are still feeling “sticker shock” at the grocery store, explains personal finance expert Rubina Ahmed-Haq.
“When we go to the grocery store, we still have recent memory of what avocados cost, what a loaf of bread costs, what a carton of eggs costs,” she says.
“It’s still something that we’re getting used to, that prices are here to stay at this level. They just aren’t increasing as aggressively year-over-year.”
The acute pain of food inflation in recent years is one of the justifications Prime Minister Justin Trudeau cited this week in announcing the Liberal proposal for a two-month GST/HST “holiday” applying to many common grocery items.
Sal Guatieri, senior economist and director at BMO Capital Markets, tells Global News that, in contrast to the global bout of inflation from the past few years, today’s price jumps at the grocery store are not necessarily universal.
In Canada, while grocery inflation was up 2.7 per cent in October, the latest figures from the United States show food prices were up just 1.1 per cent annually.
Guatieri says there’s a few reasons why food inflation looks different on either side of the border, but the most glaring perhaps is the weak Canadian dollar and surging strength of the United States’ greenback.
The loonie fell below the 71-cent mark compared to the U.S. dollar to start this week, marking a four-year low before recovering somewhat.
Guatieri says this differential is felt particularly hard at grocery stores in Canada, particularly in the colder weather seasons when much of the fresh food Canadians eat is imported from the U.S.
Import prices for food have been growing “quite strongly,” Guatieri says, rising 14 per cent in the past year.
Canadians are likely feeling the compounding effect of a weak loonie and drought earlier in the year on beef prices, he says, with the latter reducing cattle stocks and limiting supplies of beef coming from south of the border.
Guatieri says consumers can also expect prices to rise a bit sharper heading into the end of the year, particularly ahead of the holiday season when Canadians are buying and eating more food than usual.
“They celebrate more, certainly with friends and family. And so the demand for food products, especially at the grocery store, tends to go up,” he says.
While the Canadian dollar has been flailing against its American counterpart for well over a year, much of the loonie’s weakness can be traced to the results of the U.S. presidential election.
Donald Trump’s looming second administration comes with threats of blanket tariffs on trading partners and other economic policies aimed at stimulating growth in the U.S. While it remains to be seen what campaign promises will become policy when he assumes office in January, Guatieri says that the general risks of a Trump presidency lean more towards higher inflation.
That’s important for the U.S. Federal Reserve, which looks at where inflation is heading as it sets its benchmark interest rates. Expectations that the Fed might not cut as much as previously expected are important for setting currency exchange rates — the differential between the Bank of Canada’s policy rate and its counterpart in the U.S. affects the value of the loonie.
With the Bank of Canada getting a headstart on the Fed in its rate-cut cycle, the two central banks’ policy rates stand at a wide differential, discouraging investors from piling into the loonie and instead pushing them to relative safety in the U.S. dollar.
BMO notes that part of the loonie’s recovery this week came from reined-in expectations for the Bank of Canada’s own pace of rate cuts, which came from an upside surprise to inflation and some reaction to the Liberal stimulus proposals.
But Guatieri says that a Trump presidency is still likely to be bad news for the Canadian dollar.
“That does suggest the Canadian dollar could be on the defensive for quite some time,” he says.
Ahmed-Haq says there are a few strategies Canadians ought to employ or revisit when they head to the grocery store, even if price hikes aren’t in the double-digits anymore.
For one, making a list and doing an inventory of what you need — and what you already have — before heading to the grocery store is critical for avoiding food waste, particularly on perishable items that can be quick to go bad.
“When you throw things out, that is really throwing money in the garbage,” Ahmed-Haq says.
She also recommends avoiding putting too much focus on grocers’ loyalty programs. While one loyalty program can be helpful, if shoppers are visiting multiple stores and are enrolled in many different rewards schemes, it can dilute the effectiveness of any savings.
Instead, Ahmed-Haq recommends those who live near discount chains take advantage of those, where lower prices can often be found at the expense of wider selections.
“Price still trumps everything,” she says.
— with files from Global News’s Anne Gaviola