New taxes

Canadian PM Justin Trudeau’s warning of new taxes on national grocery chains is unlikely to solve high food inflation and could lead to price increases for other essentials.

Canadian grocery chains asked to control prices

Trudeau invited the heads of Canada’s five largest grocery chains (including Sobeys, Metro and Loblaw) to discuss how they plan to control sky-rocketing food prices. He threatened that the government would impose new taxes if their plans did not provide relief.

Reuters reached out to us for commentary in an article by Granth Vanaik and Juveria Tabassum, “Canada’s warning of new taxes on top grocers may not lower food inflation, analysts say.”

“Michael Ashley Schulman, chief investment officer at Running Point Capital Advisor, said new taxes could have the adverse effect of causing price increases for other personal and household essentials like toiletries and cleaning products.”

PM Justin Trudeau’s action smells like a political move in advance of mandatory elections in 2025. It follows a similar move in France that targeted food manufacturers which has helped but not eliminated food inflation there. Wars, climate disruptions, and high fuel prices carry much of the blame for food inflation.

Realistically, without enlisting the support of consumer product goods (CPG) manufacturers, like they did in France, Trudeau’s actions probably won’t have much impact; such CPG vendors make up nearly 3/4s of retailer costs.

His action will be a lingering credit negative for stocks and debt of Canadian retailers and those with high exposure to the space. Grocery’s recent heyday may be over in Canada.

Disclosure: The opinions expressed are those of Running Point Capital Advisors, LLC (Running Point) and are subject to change without notice. The opinions referenced are as of the date of publication, may be modified due to changes in the market or economic conditions, and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Running Point is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Running Point’s investment advisory services and fees can be found in its Form ADV Part 2, which is available upon request. RP-23-97