Diesel Price Shock Could Drive Up Canadian Grocery Bills by 2026

Canadians may soon face higher grocery bills due to a rising cost of diesel and crude oil, according to a report by Scotiabank. The strain on crude oil supplies has been worsened by the Iran war, which has disrupted shipments through the Strait of Hormuz. Meanwhile, diesel shortages have been exacerbated by damage to Russia's refineries and infrastructure due to the ongoing Russia-Ukraine war.

Diesel is essential for various industries, including logistics, agriculture, and manufacturing. Olivier Gervais, Scotiabank director of modelling and forecasting, noted that the spike in diesel prices is adding to inflationary pressures. These higher costs are expected to gradually spread through supply chains, leading to increased consumer prices for food and shelter.

The report explains that the impact of these price shocks will be felt over time, with shelter prices peaking about a year after the shock and food prices rising 18 months later. The Iran war began on February 28, 2024, suggesting that consumers may start experiencing significant financial pressure around March 2026.

Central banks, including the Bank of Canada, are closely monitoring these risks. Higher inflation could lead to more expensive loans and mortgage renewals. Scotiabank's report warns that a prolonged shock could increase the need for aggressive monetary policy responses to control broader inflation pressures.