Softening food deflation should help grocers
Grocery basket price deflation appears to be tapering and that is good news for Canadian food retailers, according to two industry reports.
While March results suggest grocery deflation continued in the industry, the level of deflation was lower than February’s, analyst Peter Sklar of BMO Capital Markets wrote in an analysis published Monday.
BMO’s grocery basket survey predicts Statistics Canada will report grocery deflation of less than four per cent for the month of March, Sklar said. Statistics Canada reported February deflation of 4.1 per cent in its Consumer Price Index of food purchased from stores, and the agency is scheduled to release CPI data for March on April 21.
Food prices began going down in the United States in December, 2015, and in Canada the deflationary food trend started about three quarters later, in September 2016.
If lower food prices are passed on to consumers, food price deflation can be seen as partly beneficial, but it weighs on the profits of grocery retailers because their sales and general and administrative costs typically continue to increase.
Canada’s grocery market became significantly more pricecompetitive prior to and during the deflationary period that began last year. Walmart, Loblaw, Metro and Sobeys lowered shelf prices in selected categories amid an ongoing market share battle that has intensified with the rising grocery sales at Costco and Walmart in Canada, but that, too, could be letting up.
“The trend we observed in February of Loblaw cutting prices more significantly than other grocers on a month-over-month basis appears to have run its course in Toronto and Montreal in March,” Sklar wrote in his report. “Overall, we believe that the smaller magnitude of deflation in March is a positive development for the Canadian grocers, and there has been some modest level of recovery in grocery prices on a month-overmonth basis.”
Produce was the primary driver of deflation, Sklar added.
While he expects grocery prices will still experience “significant” deflation in March, it will be less than in January and February, Sklar said.