Ontario restaurant price hikes boost food inflation after minimum wage increase

Chefs at work in a restaurant kitchen.

Ontario restaurants hiking menu prices after the province raised its minimum wage this year were likely responsible for pushing January food inflation to its highest annualized increase in nearly two years.

Overall food prices were 2.3 per cent higher last month compared with January 2017, according to Statistics Canada. It's the biggest jump since April 2016 when food prices increased 3.2 per cent.

Restaurant price hikes led overall food inflation higher. Prices at eateries rose 3.7 per cent year-over-year in January. That follows a 2.9 per cent year-over-year increase for dining out in December.

"If you were to think that was the result of Ontario's minimum wage, you'd be correct," Robert Kavcic, a senior economist with BMO Capital Markets, wrote in a note.

In January, the province raised its minimum wage more than 20 per cent from $11.60 an hour to $14.

Ontario outpaced other provinces and territories in how much restaurant prices went up from December 2017 to January 2018. Prices in the province rose 1.9 per cent during that time, according to Statistic Canada's figures. The next largest monthly increase happened in Alberta where prices rose 0.7 per cent.

Kavcic called the rise in the cost of eating out in Ontario "an entirely predictable response."

Many restaurants across the province, spanning from small mom-and-pop shops to larger chains, raised prices on some or all of their menu items around the date the new minimum wage rates came into effect to help offset increased labour costs.

"The size surprised us, but we weren't surprised that there would be a significant increase," said James Rilett, vice-president of central Canada for Restaurants Canada, a not-for-profit association representing 30,000 businesses in the restaurant and food service industry.

The association conducted a survey ahead of Ontario's minimum wage raise implementation and the vast majority of respondents said they planned to increase prices in some way.

It's likely Ontario's restaurant food inflation will continue to rise, he said, as price-sensitive restaurateurs realize they did not increase prices enough initially or learn they did not account for the costs of other new legislation, including new rules around vacation and holiday pay.

Food is a restaurant's most expensive cost after labour, said Rilett, who anticipates another bump in prices when the minimum wage impact ripples into the price of food as farmers, processors and others also face increased costs.

Ontario will also see another $1 boost in minimum hourly rates next January 1 and the industry will see another round of price increases in the province, said Rilett.

B.C. also recently announced plans to lift wages for its lowest paid workers. The western province will raise rates to at least $15.20 by 2021 where a similar pattern may emerge.

But it's not only eateries that seem to be raising prices as a response to the additional expenses.

Ontario outpaced inflation in other provinces and territories for other categories as well.

Child care and housekeeping services in Ontario, for example, increased 9.9 per cent in January compared with the same month the previous year, according to Statistics Canada, while Canada-wide that service increased 5.8 per cent. The agency said that coincided with the legislated minimum wage increase.

Royce Mendes of CIBC World Markets believes it's likely the increase in that service was also tied to the bump in wages.