Diesel price spikes threaten Canadian food and housing costs

Rising diesel prices are expected to drive significant inflation in Canada, specifically impacting food and housing costs. A report by Scotiabank’s Olivier Gervais identifies a structural product shortage in diesel, driven by geopolitical tensions in Iran affecting the Strait of Hormuz and Ukrainian strikes on Russian energy infrastructure, which have reduced global refining capacity.

The economic impact is expected to follow a staggered “pass-through” effect. Initial increases in commercial freight and trucking surcharges are expected first. These costs are projected to influence shelter prices within a year, while agricultural and transport expenses are anticipated to trigger a secondary surge in grocery and food prices approximately 18 months after the initial fuel shock.

Specific food sectors, including fresh produce, meat, and dairy, are particularly vulnerable due to their reliance on long-distance trucking and refrigerated transport. Economists warn that while some food inflation has shown short-term cooling, the full impact of elevated diesel costs may continue to pressure grocery bills through 2027.