Rising diesel prices threaten to push food inflation higher after Thanksgiving

A global spike in diesel prices is expected to drive up food costs for Canadian consumers this winter. The increase is linked to an energy shock from the ongoing war in Iran, which has disrupted oil shipments and raised fuel costs. Diesel, which powers trucks and ships, is a key input for the food supply chain. Statistics Canada reported diesel prices were 75 per cent higher in August compared to a year earlier. Food economist Mike von Massow said that “as diesel prices go up, food prices go up relatively across the board.”

The impact of higher diesel costs is typically lower in summer when more food is sourced domestically. This advantage disappears in colder months as Canada imports more produce from the United States and overseas. Von Massow suggested fresh vegetables, which require long-distance travel or refrigeration, will be most affected by rising transportation costs in the coming weeks. He noted Thanksgiving marks a seasonal shift away from homegrown commodities.

“Thanksgiving is all about celebrating what we’re producing in Canada. So it is the price increases we’ll see beyond Thanksgiving that I think we need to pay attention to,” von Massow said. Food inflation had recently cooled, falling to 2.8 per cent in August. Randall Bartlett of Desjardins said a stronger Canadian dollar earlier this year and the removal of federal counter-tariffs in September 2025 helped ease recent pressures at grocery stores.

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Recent months have seen the Canadian dollar weaken against the U.S. dollar. Canada has also imposed retaliatory tariffs on some agricultural parts and machinery amid a re-escalated trade dispute with the United States. Bartlett said these factors could pressure farmers during the fall harvest. “We think there is a confluence of forces that’s likely to lead food inflation higher going forward,” he said.

Amar Singh of Kantar said another round of food inflation could significantly change how people shop. Consumers may switch to cheaper alternatives or avoid buying fresh fruits and vegetables, which are more expensive in winter. “Basically, you reduce consumption, just have the essentials and cut down on the frills,” he said. A Bank of Canada survey found Canadians remain deeply concerned about high prices.

The central bank's survey indicated that people who expected inflation from the Middle East conflict were more likely to reduce spending or choose cheaper items. “Canadian shoppers are very anxious about what’s happening and they’re preparing for that,” Singh said. He added this anxiety will extend beyond grocery shopping to social habits. “People will host less; there will be no lavish parties that people spend on.”

Singh said reduced consumption during festivities hurts grocers and stifles innovation. “That’s going to have a domino effect on our economy,” he said. Marketing professor Michael Mulvey said high diesel prices hurt both retailers and consumers. Retailers resist raising prices to maintain stability, but eventually must pass on costs. When they do, Mulvey said, “People may cut back on their consumption. Your forecast may not match. You have extra inventory.”

There is often a delay before higher costs appear on store shelves, and prices can remain raised even after input costs fall. Mulvey noted the complexity of transportation contracts set months in advance. Overall food inflation, which peaked at 10.4 per cent in January 2023, has declined but briefly spiked again in late 2025 and early 2026. A slowdown in the rate of increase is not the same as prices falling.

Statistics Canada said grocery prices in August were 29 per cent higher than five years ago, with staples like beef and coffee seeing some of the largest jumps. “We’ve seen this cumulative effect of price increases over time that has built this sustained pressure on Canadian households,” von Massow said. Singh noted lower-income households bear the brunt of these increases as wages fail to keep pace. “Their wages haven’t kept up with the increase in prices. That erodes their disposable income.”

With files from The Canadian Press and BNN Bloomberg