How Oil Prices Influence The Grocery Business

Canadian retailers have been raising their prices on groceries since early 2019. Will you adapt your pricing strategies based on macroeconomic trends before others do?Canadian retailers have been raising their prices on groceries since early 2019. Will you adapt your pricing strategies based on macroeconomic trends before others do?

Price inflation of grocery items has been accelerating since the beginning of 2019 at a speed not seen since 2016. Traditionally, price increases have been associated with many factors such as rising costs of products and a lack of competition between retailers. Macroeconomic factors such as the Canadian dollar to U.S. dollar exchange rate can be attributed to the cost increase of underlying commodities in recent months.

Forward-looking retailers need to dive deeper into the underlying causes of rising costs to proactively change their pricing strategies. For example, the exchange rate of the Canadian dollar can be forecasted and leveraged by executives to calculate the impact on grocery prices. Graphs below clearly illustrates that grocery prices are highly correlated with the performance of the Canadian dollar:

After absorbing the exchange impact in the latter half of 2018, Canadian grocery retailers have been quick at raising their prices while the Canadian dollar continues to weaken in 2019. There are many variables driving the performance of the Canadian dollar, and a major one is the price of oil:

As we can see from the graph above, the Canadian dollar has been moving along with oil prices for the last few years. Gaining a solid understanding of the direction of crude oil prices can help retailers better forecast the Canadian dollar and grocery pricing.

On top of oil prices, Fusion Analytics actively tracks and forecasts all types of macroeconomic trends such as consumer confidence, weather, and unemployment to help our clients stay informed of their business. You can download a copy of the insights covered in this article here: Download PDF