Diesel-fuelled price hikes could stoke food inflation this fall, experts warn

Experts warn that a surge in diesel prices could lead to increased food inflation this fall. The ongoing war in Iran has caused a global energy shock, causing higher prices for diesel, gasoline, and other crucial inputs such as fertilizer. Diesel, which powers trucks and ships, plays a vital role in Canada's food supply chain, and its price hikes directly impact the prices consumers see at grocery stores.

Statistics Canada's dashboard reveals that diesel prices rose by 75% year-over-year in August. Mike von Massow, a food economist at the University of Guelph, explains that as diesel prices increase, food prices tend to rise as well. The pressure of higher diesel prices becomes more prominent during colder months when more food is imported from the United States and overseas, or when it must be transported over long distances.

Thanksgiving marks a seasonal turning point for food prices, as Canadian supply chains shift away from homegrown commodities. Mike von Massow suggests that the price increases we see beyond Thanksgiving should be of particular concern. Randall Bartlett, deputy chief economist at Desjardins, points out that the Canadian dollar's recent decline against the U.S. dollar and retaliatory tariffs on agricultural parts and machinery could exacerbate food inflation going into the fall harvest.

Higher food prices may lead consumers to switch to cheaper options, such as reducing consumption of fresh fruits and vegetables. Amar Singh, senior director and head of Canadian retail insights at Kantar, warns that people might cut back on non-essential items, affecting retailers and potentially leading to a domino effect on the economy.

Retailers may become hesitant to raise prices due to consumers' preference for price stability, but the lag in adjusting prices can result in excess inventory. Food inflation, encompassing both restaurants and grocery stores, has surged since the aftermath of the war in the Middle East.