Prices for many foods coming down, but inflation has left a legacy

Prince Edward Islanders may have noticed prices for some groceries falling in the last few months, but the pain of inflation over the last three years has not disappeared.

In some cases, prices gathered by Statistics Canada show significant drops recently.

From August to February, beef prices fell 16.4 per cent, bread and grains are down 9.8 per cent, and frozen produce is down 7.4 per cent. Prices of those three commodities remain high compared to January of 2021, however,upbetween 17 per cent and almost 30 per cent.

More relief may be on the way, though.

"Consumers are retreating. They're just not spending the same amount of money at the grocery store," said Prof. Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University in Halifax.

"We are seeing food sales stagnating while the population is growing. That's a bad sign for grocers, for sure. To actually get people back in stores, you need to revisit your pricing strategy, and that's exactly what's going on right now."

This retreat by consumers on the Island is relatively recent. In 2021 and 2022, increased spending on groceries on P.E.I. was running well ahead of the increase in prices. In 2023, however, spending fell behind.

The consumer price index for groceries in 2023 was 22.6 per cent higher than it was in 2020, but spending on groceries was up only 20.2 per cent.

It's a sign that Islanders were adjusting their buying in order to spend less on groceries.

"That's what we predict people will do," said UPEI economics Prof. Jim Sentance.

"If prices aren't moving evenly across the board, then people are going to look at 'Where are you seeing price increases?Where are you seeing prices staying the same, or maybe sales happening?'You'll shift your consumption around."

Supply, demand, and the price of groceries on P.E.I.

5 months ago

Duration 2:45

CBCs Kevin Yarr asks UPEI economics Prof. Jim Sentance why the price of frozen produce is up more than fresh, and about the power of changing your buying habits.

Where that change is happening is where some of the biggest price increases of the last three years were seen, said Charlebois,

"We are seeing people moving away from the meat counter altogether, thinking that the meat counter is just way too expensive," he said.

That's not good for grocers because profit margins at the meat counter can be 40 per cent or more, he said.

Dropping demand a factor

Much of the talk around inflation in the last few years has been on one side of the price-setting equation: the cost of supply.

Supply chain issues during the height of the pandemic, the war in Ukraine, drought on the Prairies all of these things raised the cost of production or restricted the supply, putting an upward pressure on grocery prices.

We may now see the flip side of price setting demand coming into play.

Demand in some categories, such as meat, is falling as consumers adjust their shopping habits to make their grocery spending go as far as possible.

Frozen produce paradox

One of the more curious aspects of grocery inflation on P.E.I. in the last three years has been the divergence in price between fresh and frozen produce.

The price of frozen produce rose sharply in the first half of 2021, and was 15.9 per cent higher by May than it had been by January.

But fresh produce prices were falling at the same time, down three per cent from January to May of 2021.

Fresh produce is not the only cost for frozen food processors: there is labour, packagingand the energy required to freeze it, said Sentance.

But that may not be the only issue at play.

"When you look at the people that make frozen foods, pre-packaged foods, prepared foods for us, you're looking at a relatively small number of corporations," he said.

"A lack of competition in that sector might give them more control over prices."

Frozen food companies may also have developed brand loyaltyto help them keep customers, he said.

By contrast, noted Sentance, there are many suppliers for fresh produce, making it more difficult to keep prices high. And creating brand loyalty for fresh produce is much more difficult, he added.

After the separation in prices between fresh and frozen in the first months of 2021, the prices in the two categories have largely followed one another. But the20 per cent difference in price created at that time has persisted to this day.