Business Brief: Stocking up for a food fight

Good morning. Loblaw’s earnings this week may shed light on how the grocer is managing rising costs on U.S.-sourced goods – and how customers are responding to price increases on store shelves. That’s in focus today, along with a look at the week ahead.

Up first

In the news

Trade: The premiers will be gathering in Ontario cottage country this week for a meeting focused on Canada’s continuing response to President Donald Trump’s tariff threats, and an update from Prime Minister Mark Carney on the state of trade and security negotiations with the U.S.

Wildfires: Residents and business owners in Jasper, Alta., are at risk of running out of insurance coverage for additional living expenses and business interruption, as delays in rebuilding after last year’s wildfire continue to challenge the town, an industry association warns.

Energy: A central figure in former president Joe Biden’s effort to make the United States a clean-energy superpower believes Canada needs to get more assertive about trying to attract low-carbon investment and innovation now being displaced south of the border.

Also on our radar

Today

The Bank of Canada’s quarterly Business Outlook Survey today will show corporate expectations for future sales, input prices and hiring. After noting a shaky outlook in its last report, some economists are predicting we’ll see early signs of stabilization as companies develop plans to mitigate tariffs.

This week

• On the economics front, Statistics Canada reports the June new housing price index on Wednesday and May retail sales on Thursday.
• A lively week of earnings is headlined at home by Canadian National Railway tomorrow; Rogers, Suncor and West Fraser Timber on Wednesday; and Loblaw, Cenovus and Ovintiv on Thursday. U.S. market giants Alphabet and Tesla report on Wednesday.
• Astronomer Inc. will be on the hunt for new leadership after the IT company’s CEO resigned this weekend. Oh, what a thing to do.

In focus

The ups and downs of moving to maple

The Buy Canadian movement might soon get fresh motivation at the grocery store.

U.S. President Donald Trump’s threat to raise levies on Canadian imports to 35 per cent from 25 per cent on Aug. 1 would force Prime Minister Mark Carney to decide whether to respond in kind – a move that would raise prices on a variety of U.S. goods, including fruits, vegetables and processed foods.

In a LinkedIn post ahead of Thursday’s earnings report, Loblaw CEO Per Bank said sales volumes for products sourced directly from the U.S. have already fallen by an average of 15 to 20 per cent. Some dropped by as much as 50 per cent where a Canadian alternative is available, he said.

That’s mainly by design. Rachel Battaglia, an economist at RBC, said the intent of Canada’s retaliatory tariffs is to “put pressure on U.S. exporters without being overly punitive to Canadian consumers.”

“Tariffs on goods coming into Canada aren’t actually meant to be paid – they’re meant to encourage people to buy something else,” Battaglia said in an interview. “So that helps mitigate the inflationary impact.”

The source code

In his post, Bank said Loblaw has added 70 Canadian suppliers in its second quarter. The retailer’s system for labelling products directly sourced from the U.S. will grow to 7,500 items, up from earlier estimates of 6,000, he said.

While consumers are making changes, food spending on the whole hasn’t fallen off significantly, Battaglia wrote in a recent report based on the bank’s cardholder data. “That suggests consumers are managing higher prices, not necessarily cutting back in a meaningful way.”

But how severely households are feeling the impact of rising prices depends on income.

“Food makes up a much bigger share of expenses for low- and middle-income Canadians,” she said. “So they’re the ones who are more likely to adjust their spending. Higher-income Canadians might not be adjusting much at all.”

Price pressures

Even as Canadians turn away from U.S. goods, long-simmering pressures over the price of food persist. Since the start of 2022, food inflation has run hotter than every other category in 40 of 45 months, according to data from Statistics Canada.

Over the past 3.5 years, food prices at grocery stores and restaurants have risen 20.3 per cent, compared with an 11.6-per-ent increase for everything else:

Last week’s inflation report from Statistics Canada showed grocery prices from May to June increased at a slower pace this year than during the same two-month period in 2024. But it’s an increase nonetheless – and one that builds on costs being passed along by Canada’s food sector.

Food processors, manufacturers, and distributors still recovering from pandemic-driven disruptions are facing tough math as tariffs raise input costs and add volatility to sourcing and logistics. Those higher costs have led to price increases, but pushback from budget-conscious consumers is limiting how much they can pass on, according to a recent industry report.

Next in line

Carney hasn’t said what he plans to do if Trump follows through with the hike on Aug. 1. Speaking to media last week after announcing new tariffs on cheap steel imports, he pointed out that Canada has imposed tariffs but would prefer to avoid them.

“We believe in free trade. We believe that the best arrangements would be low tariffs,” he said. “It’s proven.”

Trump is a self-described “tariff man,” though he also has a history of pushing back deadlines. At a certain point, as Carney has acknowledged, any trade deal with the U.S. would likely include tariffs.

Spending on groceries and dining out has held up more than some categories, Battaglia said. “But if we do see another leg up in prices – let’s say it’s new tariffs or supply chain issues – that could change. There is definitely a limit.”

Charted

Developers go rental

Despite a challenging economic environment, national housing starts have held up a lot better than gloomy predictions from analysts. A big reason, Matt Lundy writes, is that developers are building more rental units.

• Over the 12 months through June, there were roughly 108,000 rental unit starts across the country, according to recently published data from Canada Mortgage and Housing Corp., or CMHC.
• That’s nearly double the figure for condo units, which have seen buyer interest dry up.

Bookmarked

On our reading list

The cost of work: Want to work American hours but earn European wages? Welcome to Canada.

The curse of live music: From a Coldplay kiss cam to Steve Miller’s cancelled tour (and more), it’s a cruel summer for concerts.

Morning update

Global markets were mixed as investors shrugged off the Japanese ruling coalition’s defeat in upper house weekend elections and turned to focus on this week’s U.S. tech earnings and European Central Bank policy meeting. Wall Street futures were in positive territory, and TSX futures followed sentiment higher.

Overseas, the pan-European STOXX 600 was down 0.19 per cent in morning trading. Britain’s FTSE 100 slipped 0.08 per cent, Germany’s DAX declined 0.23 per cent and France’s CAC 40 gave back 0.51 per cent.

In Asia, Japan’s Nikkei was closed for a holiday, while Hong Kong’s Hang Seng advanced 0.68 per cent.

The Canadian dollar traded at 72.94 U.S. cents.