Economists and academics expect the trend of rising prices at the grocery store will follow consumers into 2026 even as Statistics Canada reported the overall inflation rate held steady in November.
The agency said Monday that annual inflation rose 2.2 per cent in November, unchanged from the previous month and a tick below economists' expectations.
Grocery prices were up 4.7 per cent year-over-year in November — a jump from 3.4 per cent in October and the highest level recorded since December 2023.
Rising prices for fresh berries were driving the acceleration in November, StatCan said, and costs were also rising in a broad category that includes prepared foods like soup and potato chips.
Prices for fresh or frozen beef were up 17.7 per cent in November amid lower cattle inventories across North America. Meanwhile, tariffs from the United States, combined with tough weather conditions, are putting strain on coffee-producing regions, driving the cost of refined coffee up 27.8 per cent annually.
Benjamin Reitzes, BMO's managing director of Canadian rates and macro strategist, said in an interview that price signals from food producers suggest inflation at the grocery store will remain stubborn at least through the first few months of 2026.
The Food Price Report released by several Canadian universities earlier this month projected a four to six per cent inflation rate in the sector next year.
Reitzes said a soft Canadian dollar can push up import prices for grocers, and global trade frictions are also raising costs across the supply chain.
"We'll see how the trade picture plays out through the course of 2026," he said.
"There is the potential there for things to improve, but there's precious little that the Bank of Canada can do about food prices because interest rates do not impact food prices, unfortunately."
The November inflation figures come after the Bank of Canada held its benchmark interest rate steady at 2.25 per cent last week.
CIBC senior economist Andrew Grantham said in a note to clients Monday that a series of core inflation metrics declined somewhat in November, suggesting some easing in underlying price pressures.
He said core inflation is "still too high to allow further interest rate cuts," but it's also not strong enough to warrant calls for a hike in 2026.
"We continue to forecast the Bank of Canada to hold its overnight rate steady at its current level throughout next year," Grantham said.
Financial markets are overwhelmingly in favour of another hold at the Bank of Canada's first rate decision of 2026 on Jan. 28, according to LSEG Data & Analytics.
Reitzes said that while core inflation eased, the breadth of inflation — the spread of items seeing prices accelerate — worsened in November.
He agreed with Grantham that the central bank is likely to keep its benchmark interest rate unchanged through all or most of 2026.
StatCan said Monday that gas prices are down year-over-year but rose 1.8 per cent on a monthly basis in November thanks largely to oil refinery disruptions.
Meanwhile, consumers were finding some relief on travel costs last month.
StatCan said the price of travel tours fell 8.2 per cent year-over-year in November as fewer Canadians visited the United States.
Traveller accommodations also fell 6.9 per cent annually. StatCan said the year-over-year drop was particularly pronounced in Ontario, which in November 2024 saw Toronto play host to Taylor Swift’s Eras tour concerts.
Rent price growth was also slowing in November, offset by accelerating costs for cellular services.
TD senior economist Leslie Preston said in a note that she's expecting some "choppiness" in the coming months for inflation as last year's GST holiday distorts the annual comparison.
The federal government last year waived sales tax on a variety of grocery items, common gifts and household goods for two months starting in the middle of December.
Reitzes said the annual inflation comparisons tied to the tax holiday should see the headline figure rise starting in December and cool off again in February.
He added that the inflation picture will be skewed again in April, a year after the removal of the consumer carbon price sharply lowered prices at the gas pumps for much of 2025.
"There's going to be lots of noise in the inflation numbers over the next four months — part of the reason why it's reasonable for the Bank of Canada to wait on the sidelines here, see how things evolve," Reitzes said.
Preston said TD overall expects inflation to moderate back toward the Bank of Canada's two per cent target over the coming year.
Picture Courtesy: THE CANADIAN PRESS/Christopher Katsarov
