October Grocery CPI Ticked Slightly Higher to 2.3% Due to Vegetable Inflation
Source BMO Capital Markets
Peter Sklar, CPA, CA Retailing/Consumer
StatsCan grocery CPI inflation of +2.3% was slightly higher than inflation in
August (+1.6%) and September (+1.3%) (see p.2), primarily due to a sudden
jump in inflation in fresh vegetables. Competitive intensity remains high as
indicated by the lack of inflation in the "centre-of-aisle"
categories. However, with the second wave of COVID-19 prompting renewed
lockdowns, consumer mobility could again be depressed and provide the grocers
some relief from competitive pressure.
continue to note that inflation for "centre-of-aisle" categories
continue to be low in October (see p.2). Bakery and Cereal inflation
continues to be low at only +0.4% in October, down from inflation of +4.1%
earlier in the year in April. Prices
of "other food products and non-alcoholic beverages" category,
which encompasses the majority of CPG items, was essentially flat at +0.1% in
October (prices have been flat since August), compared with inflation of
+2.5% in April. "Centre-of-aisle"
inflation/deflation is a good measure of competitive intensity as CPG items
are ubiquitous and grocers compete fiercely in this department in order to
drive traffic. Recent months' low inflation in these CPG categories is in
line with recent commentary from Loblaw, which cited high competitive
intensity, especially in the discount banners, in which Loblaw had to invest
in price in Q3/20.
In October, Fresh Vegetables had a sudden jump in inflation to
9.5% in October, versus inflation of less than 5% in the last 10 months.
Statistics Canada partially attributed the high inflation to lettuce, which
had reduced supply as a result of disease and inclement weather in growing
categories contributing to a slightly higher inflation in October were Fresh
Fruits (+4.6%), Pork (+3.4%), and Poultry (+3.2%).
Based on our flyer observations, competitive intensity appears
to continue. However, a second wave of COVID-19 and resulting tightened
public health restrictions such as renewed lockdowns could potentially
provide some relief from competitive intensity. We are expecting grocery
price inflation in November to be similar to that experienced in October.
believe the grocers will continue to generate strong topline growth through