Food inflation | A BBQ dinner in three equal instalments

Grocery basket 9% more expensive than in 2022, and still rising. Where does food inflation come from, and is it possible to curb it? From climate change to crop disease and armed conflict, Sébastien Mc Mahon and Ashleay Dollard break down the issue for us. Get ready to tighten your belts for a while to come!

Ashleay: Welcome to iA Financial Group's “In Your Interest!” podcast, where we aim to share with you the essentials of economic news and its impact on your finances. My name is Ashleay, and this week we're talking about food inflation with Sébastien Mc Mahon, our Chief Strategist and Senior Economist. Hi, Sébastien.

Sébastien: Hello, Ashleay.

Ashleay: So, Sébastien, inflation seems to be slowing down everywhere except at the grocery store. Is that possible?

Sébastien: It is possible. It's more than possible: It's what's actually going on right now. Maybe we’ll just get some definitions out of the way. Food inflation is measured by Statistics Canada. StatsCan does surveys and constructs the average grocery basket that would be consumed each week by a typical household. Then, every month, they look at how the price of that basket evolves, and from that they produce food inflation numbers. The latest numbers, from the time of recording this podcast, are from March 2023. So, if we start with the total inflation in Canada, we know that it slowed to 4.3% for the month of March. So, between March 2022 and March 2023, the price of the average goods and services in Canada went up by 4.3%. But food inflation, specifically, is still high at 9%. So, the average grocery basket went up by 9% between March 2022 and 2023. And it's still close to the peak of 10.5% that was reached just last January. And, unfortunately, for monthly food inflation—so, month over month—we see that, since the beginning of the year (we'll look at January, February and March), the average pace of inflation is still around 0.5%. This is elevated and it shows no signs of slowing down yet. So, we're not out of the woods for food inflation by any measure.

Ashleay: Okay. And why do the prices keep going up? Are the grocery stores lining their pockets?

Sébastien: Probably to some extent. Let's say that the grocery chains are well-consolidated right now; they’re well-oiled machines and they tend to be good at protecting their profit margins. They were summoned to Ottawa a few months ago to explain themselves. And yes, the margins are a bit higher, but it's not just them. There are also other large multinationals taking advantage of the inflationary wave to drive the prices of their products up. So, the producers of sugar, flour or some beverages, for example, they’ve used the inflation wave of the last few years to frontload some of the price hikes that would have been coming anyway in 2023, 2024, 2025, etc. So, there was a window for them to just push the prices up. Maybe that means that we'll see prices go sideways at some point. But thinking that prices will start moving lower, that's still farfetched.

Ashleay: I see. And if we take a look at the global food market, what are we looking at?

Sébastien: Well, this is where we go into the realm of geopolitics. We’ll try to keep this interesting and not too dry for everyone out there. But, you know, if, for you—not you, Ashley, but if for someone listening—climate change is still an abstract concept, well, it seems to be concretely catching up with all of us on our plates right now. So, the rise in food prices is mainly due to factors that are global, such as droughts, severe storms, crop diseases and even armed conflicts. We've talked about the war in Ukraine a few times, but Ukraine and Russia are both large producers of grains and cereals. So, if they stop exporting or if there are economic sanctions, well, it disrupts the whole market and prices go up everywhere. And if these disruptions are regarding things that are as elementary as grains, well, grains go into multiple other products, so that pushes inflation even higher. The World Bank recently went as far as to recommend urgent measures to strengthen food security, including support programs for small farmers, investments in irrigation, agricultural infrastructure, all these things. If there are small producers in some regions of the world that—because they are facing the challenges of climate change before us—are having issues producing the food that the planet needs, we need to make sure that, at least, we don't have to deal with an under-supplied food market.

Ashleay: Absolutely. And does Canada produce enough food for its population or are we dependent on what happens elsewhere?

Sébastien: Well, no country is entirely independent, of course, so we'll always import fruits and vegetables from warmer countries. If you like bananas, for example, and you like to eat them in January, well, it’s very likely that these are not produced in Canada. But this is not the case for everything. If you look at the net picture, Canada has become a net food exporter since 2019, mostly because we export lots of grains. This makes us a bit less affected by the post-pandemic global food price surge. So, to reduce food inflation, it's not just about acting locally, it requires global solutions: the importance of sustainable agriculture, responsible consumption, particularly by supporting organic farming, reducing food waste at a large level, encouraging a healthier and a more balanced diet around the world.

Ashleay: And then beyond our portfolios, is the global food market a key theme in the move towards sustainable development practices and ESG factors?

Sébastien: Yeah, absolutely. Food inflation has a significant impact on the lives of many people around the world. In developing countries, where food expenditure represents a significant proportion of the family budget, rising prices can lead to food insecurity and malnutrition. So, one of the main concerns about food inflation now has become food security: for individuals and communities around the world to have access to sufficient healthy food. And of course, food security is a fundamental right, which is why we have nongovernmental organizations and other stakeholders that are working together to improve food security. So, it's not just about investing; it's not just about opportunities for portfolio managers, like myself and the team at Global Asset Management; but it's about society.

Ashleay: And rising food prices can also have an impact on the environment, I believe, right?

Sébastien: Yeah, of course. The growing demand for meat, for example, has led to an increase in livestock production, which is a major source of greenhouse gas emissions. The increased use of fertilizers and pesticides to boost agricultural yields, on the one hand, helps to make sure that everyone has food to eat, but, on the other hand, can have very harmful effects on the environment and on human health. We're pretty much at this juncture now where we need to balance the ability to feed everyone while also taking care of the planet, making sure that we don't have a harmful impact on human health. Because, you know, the global population is growing, we're using more and more resources. So, we might think locally, we might think about our wallet when we go to the grocery store; but ultimately we're talking about something that is global and that we've seen coming for a while, but now, I mean, we have both feet in it.

Ashleay: Absolutely. And governments, international organizations and businesses are now working together to find some solutions for food inflation. Could you maybe give us a few examples?

Sébastien: Yeah, sure. Again, tying back to the ESG theme, some companies have committed to reducing their carbon footprint by adopting more sustainable farming practices, some organizations have launched programs to encourage the production and consumption of local and seasonal foods—which can cut costs and reduce greenhouse gas emissions. So, there are some solutions and some initiatives.

Ashleay: Very interesting. Thank you so much, Sébastien. And thank you to all our listeners for being there. If you liked this episode, we invite you to share it with your friends or give us an opinion on the listening platforms Apple, Spotify or Google Podcasts. Thanks, and we'll see you next week.

Love this podcast? Want to know more about economic news? Follow our “In Your Interest!” podcast available on all platforms. Visit the Economic News page on or follow us on social media.


Sébastien Mc Mahon joined iA Financial Group’s economy team in January 2013. Throughout his career, Mr. Mc Mahon has held various positions in several prominent financial institutions, notably at Quebec’s Ministry of Finance and the Autorité des marchés financiers, Quebec’s financial market regulator.

Sébastien Mc Mahon also serves as Vice-President, Asset Allocation, and Portfolio Manager for our subsidiary, iA Investment Management Inc. (iAIM), with assets nearing $15 billion. Mr. Mc Mahon is also a member of the firm’s asset allocation committee.

Sébastien Mc Mahon

Chief Strategist and Senior Economist

This podcast should not be copied or reproduced. Opinions expressed in this podcast are based on actual market conditions and may change without prior warning. The aim is in no way to make investment recommendations. The forecasts given in this podcast do not guarantee returns and imply risks, uncertainty and assumptions. Although we are comfortable with these assumptions, there is no guarantee that they will be confirmed.

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2024-02-23 11:51 EST
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