Will Price Hikes Dampen Demand?

We have all heard and experienced how the weaker Canadian dollar is making it much more difficult for retailers to keep prices low on anything purchased in U.S. dollars—produce in particular has risen exponentially in recent months. While there has been some encouraging news that meat prices are beginning to moderate from all time highs-last year bacon and ham went up 25 % due to a devastating outbreak of porcine epidemic diarrhea or PED-the prediction for this coming year is an overall average price increase exceeding 4%, considerably higher than last year’s 2.6% average increase.

The Food Institute at the University of Guelph in Ontario recently put out its annual report on food prices and it predicts prices for just about everything to rise for the second straight year.
Across all food types, here’s what price increases the University of Guelph says to expect in 2015:

•    Meat: 3-5%
•    Fish: 3-5%
•    Dairy and eggs: -1 to +1%
•    Grains: 0-2%
•    Fruit & Nuts: 1-3%
•    Vegetables: 3-5%

What will be the fallout from this? Will consumers tighten their belts once again by switching down to less expensive items? Or will they just absorb the increases and move on? These questions will only be answered as we proceed through the year. But given Canadian’s penchant for buying on discount /promotion we can expect there will be a continuing move to less expensive cuts of meats and more selective purchases of vegetables. And margins may well be affected as grocers will have to discount more to move volume.

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