Rising oil prices could push Canadian food prices even higher

Rising oil prices triggered by the war in Iran and global tensions could soon translate into higher grocery bills for Canadians.

Experts said that when fuel prices spike, the cost of moving food across the country climbs quickly, and that increase often shows up on store shelves.

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“We saw this before in 2008 during the financial crisis, and again in 2022 after the invasion of Ukraine,” said Sylvain Charlebois, who studies food distribution and policy as director of the Agri-Food Analytics Lab at Dalhousie University.

“When oil prices skyrocket, you saw food inflation follow suit two or three months later.”

Oil prices recently approached $100 per barrel, a sharp increase from around $55 earlier this year. Charlebois said that kind of volatility creates uncertainty across the food supply chain.

“The challenge that we’re facing right now is the volatility,” he said. “Just this week, crude varied from about $78 to $98. That’s a lot of fluctuation.”

Because of those swings, Charlebois said transportation companies often raise their bids when negotiating contracts to protect themselves against further increases in fuel prices.

“When markets are volatile, transport companies will high-ball the price of oil when they bid on contracts,” he explained.

“It doesn’t matter what happens afterward. Chances are it’s going to cost you more to transport anything food-wise.”

Those added transportation costs affect nearly every food category sold in Canada, especially those that rely on long-distance shipping.

“Meat products, dairy, fruits and vegetables are probably the categories that are going to be impacted the most,” Charlebois said.

Meanwhile, Canada is already dealing with higher food inflation than many other comparable countries.

“Right now, Canada has a food inflation rate of 7.3 per cent, which is the highest among G7 countries,” Charlebois said.

While economists expected grocery inflation to begin easing early this year, Charlebois said geopolitical tensions affecting energy prices could slow that progress.

“We were expecting food inflation to drop in February and March, and it will drop somewhat,” he said. “But because of the current situation affecting oil prices, we are expecting food inflation to remain around five to six per cent for the foreseeable future.”

That means Canadians hoping for relief at the grocery checkout may not see prices fall anytime soon.

“When you talk about food inflation, you’re talking about the pace at which prices go up,” Charlebois said. “We’re not expecting food prices to go down anytime soon.”

Another factor that could push costs higher is Canada’s industrial carbon price, which is scheduled to increase on April 1.

“The industrial carbon tax is going up from $95 to $110,” Charlebois said. “That will amplify the increase in energy costs across the entire supply chain, from farm gate to store.”

But despite the expected hike in prices, Charlebois said Canadians shouldn’t expect supply shortages similar to those seen during the COVID-19 pandemic.

“I don’t think we’ll see shortages,” Charlebois said. “Food will continue to move through the system. It will just get more expensive to move things around.”

For shoppers already struggling with high grocery bills, the recent rise in gas prices might be felt well beyond the pumps.