The Bank of Canada found that 87% of Canada’s 2025 food cost increase was driven by import costs, currency depreciation, and trade tariffs. The government’s flagship response — the Canada Groceries and Essentials Benefit — is a $12.4 billion transfer payment that addresses none of those causes. It helps some Canadians afford more expensive food. It does not make food less expensive.
Read the full analysis, sources, and counter-arguments ↓Grocery prices in Canada have risen roughly 22% since 2022 — nearly double the rate of other consumer prices over the same period. By December 2025, food inflation reached 5%, the highest since late 2023. In January 2026, the headline food inflation figure hit 7.3%, though that number requires significant context.
On February 3, 2026, the Bank of Canada published an analytical note examining what was actually driving these increases. Its conclusion was specific: the main cause was import costs — direct imports of processed food, amplified by the significant depreciation of the Canadian dollar in late 2024. Of the 3.1% total annual change in food costs (excluding fruits and vegetables) in 2025, the Bank found that 2.7 percentage points — roughly 87% — was attributable to imports, imported inputs, and international shipping costs.
Three weeks earlier, on January 26, 2026, the government had announced its flagship response: the Canada Groceries and Essentials Benefit. The Parliamentary Budget Officer costed it at $12.4 billion over six years. The benefit is a renamed and expanded GST credit — a transfer payment to low- and modest-income Canadians. It does not address import costs, currency depreciation, trade tariffs, or any of the structural causes the Bank of Canada subsequently identified.
- Grocery prices in Canada have risen approximately 22% since 2022, compared with 13% for other consumer prices. Food inflation reached 5% year-over-year in December 2025. (Bank of Canada, "Understanding the resurgence of food inflation in 2025," February 3, 2026.)
- The Bank of Canada found that the main driver of the 2025 food inflation resurgence was import costs — specifically direct imports of processed food. Of the 3.1% total annual change in food costs (excluding fruits and vegetables), 2.7 percentage points were attributable to direct imports, imported inputs, and international shipping costs. (Ibid.; Bloomberg coverage, February 3, 2026.)
- Imported food prices began rising early in 2025, partly due to the significant depreciation of the Canadian dollar in late 2024. Coffee and confectionery were up 31% and 14% respectively by December 2025, affected by supply shortages from extreme weather and trade tariffs. (Bank of Canada, ibid.)
- Domestically, live animal costs were driven up by drought and high feed costs. Retail beef prices were 17% higher in December 2025 than December 2024. These domestic pressures were partly offset by declining labour costs in wholesale and retail. (Bank of Canada, ibid.)
- TD Economics explicitly linked Canada's 2025 retaliatory counter-tariffs on US imports (25%, in place March to August 2025) to lagged grocery price effects. The US supplied roughly half of Canada's fresh fruit and vegetable imports and more than half of processed food imports. (TD Economics, "Canada's Food Price Misery Has Company South of the Border," February 2026.)
- On January 26, 2026, PM Mark Carney announced the Canada Groceries and Essentials Benefit. Bill C-19 was tabled January 28 and received Royal Assent by mid-February 2026. (Government of Canada, February 14, 2026.)
- The benefit provides a one-time payment equal to 50% of the GST credit's annual 2025–26 value ($3.1 billion), plus a 25% increase to the annual GST credit for five years starting July 2026 ($9.25 billion). Total PBO-estimated cost: $12.4 billion over six years. (Parliamentary Budget Officer, "Canada Groceries and Essentials Benefit," February 2, 2026.)
- The benefit reaches more than 12 million low- and modest-income Canadians. A family of four will receive up to $1,890 in the first year and approximately $1,400 annually for the following four years. (Government of Canada, ibid.)
- The January 2026 headline food inflation figure of 7.3% is significantly distorted by a base-year effect. The temporary GST/HST holiday (December 14, 2024 to February 15, 2025) suppressed food prices in the comparison period, inflating year-over-year calculations. Statistics Canada, TD Economics, RBC Economics, and Desjardins all flagged this distortion in their January 2026 CPI analyses. (Statistics Canada, "Consumer Price Index, January 2026," February 17, 2026; TD Economics, RBC Economics, Desjardins — January 2026 CPI analyses.)
- Grocery store food inflation was 4.8% year-over-year in January 2026, down from 5.0% in December 2025. Restaurant food inflation was 12.3%, driven almost entirely by the GST holiday base effect. (Statistics Canada, ibid.)
The structural mismatch
The Bank of Canada's analytical note and the government's policy response describe two different problems. The Bank documented a supply-side issue: imported food costs, amplified by currency depreciation, weather-driven shortages, and trade tariffs. These are structural cost pressures that flow through the supply chain and land on the shelf price.
The government's response is a demand-side transfer: giving consumers more money to absorb higher prices. The PBO confirmed the benefit "does not expect a significant behavioural impact from the measure" — meaning it is not designed to change the price trajectory. It compensates for higher prices without addressing why prices are higher.
The Institute for Research on Public Policy (IRPP) analysed the design and found that the average additional benefit per household in 2027, once the one-time top-up has expired, peaks at approximately $185 per year for households in the fourth income decile. Against a 22% cumulative grocery price increase since 2022, this addresses a fraction of the gap.
The 7.3% headline
The January 2026 food inflation figure of 7.3% was widely cited in political debate. Conservative Leader Pierre Poilievre cited it in criticism of the government's affordability record. However, every major economic analysis of the January CPI — from Statistics Canada itself, TD Economics, RBC Economics, and Desjardins — noted that the figure is significantly distorted by the GST/HST holiday base effect.
When the government temporarily removed sales tax on restaurant meals, alcohol, toys, and some grocery items from December 2024 to February 2025, it suppressed prices in the comparison period. When those taxes returned and January 2026 prices were measured against the artificially low January 2025 baseline, the year-over-year figure inflated mechanically. Restaurant meal inflation — the largest component of the distortion — showed 12.3% year-over-year, a figure almost entirely attributable to the tax holiday ending, not to underlying price increases.
Grocery store food inflation — measured separately from restaurants — was 4.8% in January 2026. This is elevated but materially different from the 7.3% headline. The distinction matters because the policy debate is being shaped by a number that most professional economists have flagged as misleading.
Critics of the government may omit several relevant facts. The grocery benefit is targeted at low- and modest-income Canadians — the households most affected by food inflation, who allocate a larger share of their budgets to groceries. The benefit was legislated and funded within weeks of announcement, which is fast by parliamentary standards. The 7.3% headline figure that critics cite most frequently is distorted by the GST holiday base effect; the underlying grocery store figure is 4.8%. And some of the structural drivers — global commodity prices, weather patterns, currency movements — are not within any single government's direct control.
Supporters of the government may omit that the Bank of Canada's own research, published one week after the benefit was announced, identified import costs as the primary driver of food inflation — a structural cause that the benefit does not address. The PBO confirmed the measure has no expected impact on prices. TD Economics explicitly linked Canada's own retaliatory counter-tariffs (25%, March to August 2025) to lagged grocery price increases — meaning a portion of the inflation was directly attributable to federal trade policy, not external forces. The benefit was announced on January 26; the PBO costing was not published until February 2 — a seven-day gap during which the $12.4 billion commitment was debated without an independent cost estimate. And the IRPP analysis found the per-household benefit is modest relative to cumulative price increases since 2022.
The government identified a real problem — food prices are straining household budgets, particularly for lower-income Canadians — and responded with a mechanism that provides immediate income relief. But the response is structurally disconnected from the documented causes. The Bank of Canada identified import costs, currency depreciation, and trade tariffs. The government's own counter-tariffs contributed to those import costs. The benefit addresses the symptom (households can't afford groceries) without touching the disease (why groceries cost more). At $12.4 billion over six years, it is an expensive way to not solve the underlying problem.
Counter-interpretation: The government cannot control global commodity prices, weather patterns in coffee-producing regions, or the value of the Canadian dollar. What it can control is fiscal policy — and directing $12.4 billion to the 12 million Canadians most affected by food inflation is a proportionate, targeted response to an immediate affordability crisis. The benefit was never intended to reduce prices; it was intended to reduce hardship. Demanding that the government solve global supply chain pressures before helping families buy groceries sets an unrealistic standard. The counter-tariffs were a trade policy response to US tariffs, not a food policy decision, and were lifted in September 2025 — their lagged price effects are expected to ease.
- If the government introduces complementary supply-side measures — trade policy changes, import diversification strategies, or domestic production incentives — that directly address the import cost pressures the Bank of Canada identified, the characterisation of the benefit as a standalone response would need revision.
- If food inflation declines significantly in the months following the benefit's implementation, suggesting the transfer payment had indirect effects on demand or market dynamics not anticipated by the PBO, the "doesn't address the causes" framing would weaken.
- If the Bank of Canada's subsequent analyses revise the import-cost attribution downward and identify domestic factors (including factors addressable by the benefit) as a larger driver than initially assessed, the structural mismatch argument would narrow.
Primary Sources
- Bank of Canada, "Understanding the resurgence of food inflation in 2025" (Sparks at Bank series). Published February 3, 2026. Archived copy; date accessed February 26, 2026.
- Parliamentary Budget Officer, "Canada Groceries and Essentials Benefit" — legislative costing note for Bill C-19. Published February 2, 2026. Archived copy; date accessed February 26, 2026.
- Government of Canada, Department of Finance, "Legislation Passes to Deliver New Canada Groceries and Essentials Benefit." Published February 14, 2026. Archived copy; date accessed February 26, 2026.
- Statistics Canada, "Consumer Price Index, January 2026" (The Daily). Published February 17, 2026.
- Statistics Canada, "Consumer Price Index, December 2025" (The Daily). Published January 19, 2026.
- TD Economics, "Canada's Food Price Misery Has Company South of the Border." Published February 2026.
- RBC Economics, "Canadian CPI growth edged lower in January." Published February 17, 2026.
- Desjardins Economic Studies, "Canada: Uptick in December Inflation as Last Year's GST/HST Holiday Pushed Up Food Price Growth." Published January 19, 2026.
- Institute for Research on Public Policy (IRPP), "Expanding the GST/HST Credit: How the Canada Groceries and Essentials Benefit Helps Canadians and Why Design Choices Matter." Published February 2026.
- Bloomberg, "Import Costs Driving Canada Food Inflation, BOC Research Says." Published February 3, 2026.
Do you have internal government communications regarding the design of the Canada Groceries and Essentials Benefit, or Treasury Board analysis of supply-side alternatives considered prior to the announcement? We welcome corrections, additional context, and contrary evidence. Contact: tips@thereceipts.ca