Food prices may rise soon as diesel ‘shock’ bleeds through economy: report

Five common grocery items have seen steep price increases in 2024 due to rising energy costs, according to recent reports. A major factor behind this surge is the global diesel shortage, driven largely by damage to Russian refining capacity from the ongoing war in Ukraine and the impact of the Iran conflict on oil shipments through the Strait of Hormuz. Diesel plays a vital role in transporting goods, powering agricultural equipment, and maintaining industrial activity. According to a report by Scotiabank, the increased cost of diesel is creating a ripple effect throughout supply chains, leading to higher prices for goods and services. Olivier Gervais, Scotiabank’s director of modelling and forecasting, noted that the situation represents more than a standard oil shock, with diesel prices rising far above expectations based on crude oil movements alone. The report highlights that the effects of higher diesel prices take time to manifest in consumer prices. Businesses initially face increased operational costs, which are eventually passed on to consumers. For example, transportation costs rise first, followed by increases in shelter and food prices, with the latter peaking approximately 18 months after the initial shock. Given the timing of the conflicts, these impacts may begin to be felt more acutely by mid-2026. Central banks, including the Bank of Canada, are monitoring the situation closely. In August, Governor Tiff Macklem stated there was currently little evidence that higher oil prices had significantly influenced broader consumer prices, though he emphasized the need for continued observation. The Bank of Canada aims to maintain inflation within a one to three percent range, and potential adjustments to interest rates could occur if inflation rises further. The ongoing conflicts have created complex economic pressures, with implications extending beyond immediate energy markets. As supply chains adjust and costs propagate through industries, consumers may experience sustained upward pressure on essential goods and services.