Understanding the resurgence of food inflation in 2025

Inflation in grocery prices picked up in 2025, largely due to rising cost pressures that emerged in late 2024 and worked their way through supply chains. Compared with the cost pressures experienced during the COVID‑19 pandemic, these have been more limited, narrower in scope and more commonly tied to imported items.

Many Canadians walking down grocery aisles these days have been struck by how much prices seem to have gone up.

They’re not wrong. Since 2022, grocery prices have risen by about 22% while other consumer prices have gone up on average by 13%. And in 2025, food inflation—the year-over-year increase in prices for food purchased at stores—was elevated. In December, food inflation reached 5%, the highest since late 2023.

Rising food prices have a large and immediate effect on households—who spend around 11% of their budget on groceries—and on total inflation.

So it’s important for both households and the Bank of Canada to understand what affects food inflation and how long these effects may last.

The food supply chain is long and complex

The path that food takes to end up on your plate is a long one. Food is farmed, processed, packaged, transported and sold wholesale before you see it in the grocery aisle. So how much does each of these production stages matter for food prices?

To answer this question, I created a detailed framework to assess each category of costs in a systematic way.

I start by using detailed data on the economy’s supply chains from Statistics Canada to break down retail food prices. The analysis excludes fruits and vegetables because their prices tend to be quite volatile, reflecting weather conditions which can change a lot.

Food sold in grocery stores is either directly imported—meaning it is ready to be sold without any other production steps—or it’s made in Canada using domestic or imported inputs.

Based on this, I put the costs that go into producing food into eight broad categories:

• direct imports, such as ready-to-sell products like olive oil
• imported inputs, such as foreign-sourced ingredients, fertilizers and machinery
• domestically produced goods, such as wheat and eggs
• international shipping costs
• energy costs, such as for diesel, electricity or natural gas
• business services, such as rent, marketing fees and domestic transport
• wages
• profits and taxes

Chart 1 shows how much each category contributes, on average, to the final retail price of food (excluding fruits and vegetables).

Of course, the shares shown in Chart 1 vary depending on the type of food. For example, packaged foods have a larger share of direct imports. In contrast, dairy and meat products are largely produced in Canada, making them more sensitive to changes in domestic components such as wages and the costs of other inputs.

To monitor cost pressures associated with the categories shown in Chart 1, I collect data on the 32 most common underlying cost components. After being assigned weights, the components are added together to track total costs.

Food inflation is closely tied to cost pressures, but with a lag

This work provides a window into the costs that factor into food prices. But cost pressures take time to be fully reflected in food prices we pay in stores. This can be because, for example, grocers typically:

• use long-term contracts
• hold inventories purchased at different prices
• wait to see whether cost pressures will persist

In my work, I find that it takes between six and nine months for these cost pressures to be fully reflected in grocery prices.

Indeed, when the total cost series is moved ahead by six months, it closely tracks changes in food inflation in the consumer price index (Chart 2). This suggests that much of these variations in costs along the food supply chain are eventually passed on to consumers through retail prices. So past changes in costs play an important role in shaping current inflation dynamics. That’s what happened in 2025: the pickup in food inflation largely reflected higher cost pressures that were seen in late 2024 and the beginning of 2025.

The rise in food inflation in 2025 was mostly driven by pressures from import costs

The detailed framework helps identify which types of costs drive changes in food inflation. For 2025, the main culprit for the upswing in food inflation appears to be costs of imports (Chart 3), which were mostly direct imports of processed food.

Prices for imported food began rising early in the year, partly due to the significant depreciation of the Canadian dollar in late 2024. For some items, prices increased exceptionally quickly. Notably, in December 2025, coffee and confectionery such as chocolates and candies were 31% and 14% higher, respectively, than they were in December 2024. Both items were affected by supply shortages—caused by issues such as extreme weather—and trade tariffs.

Domestically, cost pressures have been concentrated in the costs of live animals—amplified by drought and high costs for feed—and in intermediate food products. For example, retail prices for beef in December 2025 were 17% higher than they were in the same month in 2024. But these cost pressures have been partly offset by declining labour costs in the wholesale and retail sectors.

If we look at what happened during the COVID-19 pandemic, we can see that the causes behind the rise in food inflation were different.  

During the pandemic, cost pressures were broad-based and pervasive. Increases in global freight and energy costs spread to industrial inputs and eventually to wages and commercial services such as trucking. And firms passed on most of these increases to consumers.

Food for thought

Elevated food prices continue to strain budgets for many households. Lower-income households in particular are feeling this burden because they allocate much more of their budget to groceries than higher-income households do. According to Statistics Canada, households in the lowest income quintile spent more than 27% of their disposable income on food and non-alcoholic beverages in 2024 compared with 5% for households in the highest quintile.

Monitoring changes in global and domestic cost pressures offers useful insights into food inflation dynamics in Canada. For instance, pressures from import costs eased in the second half of 2025, but some domestic cost pressures, such as those affecting meat prices, persisted. We will continue to watch these cost pressures to see how they will be reflected in prices in the grocery store aisles.

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