According to a new report from Farm Credit Canada (FCC), grocery inflation is expected to drop below two percent by the spring and remain between one and two percent for the rest of 2024. The report indicates that the pressures driving food price increases are easing, and inflation beyond 2024 is anticipated to stabilize around pre-pandemic levels.
FCC's annual food and beverage report suggests a more positive outlook for the industry compared to last year, although some sectors continue to face challenges due to factors like higher interest rates and tighter household budgets. Despite these challenges, population growth and stabilizing input costs offer optimism for margin improvement in 2024.
Statistics Canada reported that Canada's annual inflation rate was 2.8 percent in February, with grocery prices being a significant factor. Grocery inflation decreased to 2.4 percent in February from 3.4 percent in January, although prices have risen by 21.6 percent between February 2021 and February 2024.
As Canadians cope with higher costs, they are adjusting their grocery spending by buying more sale items, opting for less expensive brands, purchasing more canned and frozen foods, and reducing overall food purchases. The impact of higher interest rates is also beginning to affect consumer spending habits.
Processors are responding to consumer price sensitivity by adjusting packaging sizes and using more affordable ingredients. Alcohol sales and manufacturing volumes are expected to decline in 2024.
The report forecasts that certain food product prices, such as flour, will decrease by the end of the year after significant increases in recent years. However, challenges persist for sugar and cocoa manufacturers due to global production issues and rising cocoa prices.
Despite these challenges, the report remains relatively optimistic about the outlook for food and beverage manufacturers. While overall sales are predicted to decline slightly in 2024, improvements in gross margins are anticipated as input cost inflation moderates. Manufacturers are expected to adapt by focusing on margin protection strategies amid changing market conditions.
