Inflation eases after Canadians cut costs, but food prices are still rising

Meanwhile, instant coffee increased almost 3% from $6.90 per 200 grams to approximately $7.10.

In July, food prices at grocery stores rose at the fastest pace since August 1981, with prices up by 9.9% on a year-over-year basis compared with 9.4% the previous month. This is despite overall inflation dropping to 7.76% in July. That’s down from June, which hit a nearly 40-year high at 8.1%.

Even with this slight decline, Canadians are feeling the impact of inflation on their budgets.

Four-in-five Canadians say they cut spending

Data from the non-profit Angus Reid Institute, published on Aug. 22, showed that four-in-five Canadians polled say they have cut spending in recent months. The key areas they’ve cut are discretionary spending, delaying major purchases, driving less, scaling back travel and charitable donations, and deferring saving for the future.

The poll suggests that about 52% of Canadians say they couldn’t manage a sudden expense of more than $1,000. In addition, 38% said a surprise bonus of $5,000 would be used to mitigate debt.

Also, two-in-five (41%) are driving less, which isn’t surprising, considering gas prices rose 35.6% year-over-year in July.

Canadians looking for sales more

High gas and energy prices aren’t just impacting consumers. The Canadian Dairy Commission (CDC) found higher production costs lead to a milk price increase of at least 8.4% (the largest increase to date).

“I would say that dairy’s market is pricing itself out of the market, because some dairy alternatives are becoming cheaper,” says Sylvain Charlebois, a professor at Dalhousie University and director of its Agri-Food Analytics Lab.

“When you look at the price of dairy alternatives, most of them are actually much cheaper than dairy and milk.”

Milk is not the only grocery item thas has seen an increase. The price of eggs is up 15.8% and fresh fruit is up 11.7% since last year.

Rising food prices have also pushed Canadians to change their grocery shopping habits.

The federal agency’s figures show sales at food and beverage stores fell 1.1% in June after sales at supermarkets and other grocery stores went down by 0.8% and beer, wine and liquor stores lost 2.9%. This is probably why Canadians are opting for more non-traditional outlets such as the dollar store.

“We're seeing an increase in sales at dollar stores, at discount stores as well. People are recognising that you can actually save quite significantly if you just change address,” Charlebois said.

The NielsenIQ Thought Leadership - Inflation Report also shows that sales at dollar stores have increased by 18 per cent since March.

A study by NielsenIQ suggests that consumers in both Canada and the U.S. are making more trips to the grocery store in the second quarter, but spending less than the first quarter. The data company suggests this is an indication of a desire to capitalize on deals and minimize overall spend.

Did we peak on food inflation?

For Charlebois, the good news is that food inflation appears to have peaked.

While this may push groceries bills to ease, the professor says the July Consumer Price Index report is “pointing to calmer seas ahead” and that it may take months for a downward change to materialize.

The fall in food prices is happening on a global scale as well. The United Nations' Food Agricultural Organization (FAO) published a report saying that there is a major fall in global food prices for July, but future supply worries remain.

FAO’s price index, which measures food prices around the world, saw a 13.3 points drop in July, the steepest since October 2008.

However, food prices are still higher than they were in July 2021, up by 16.4 points.

Canadians careful with their spending

Even if Canadians are starting to cut back on spending in certain areas, they aren’t cutting their budgets entirely.