More players in Canada's grocery sector are crucial to combat soaring prices of essential goods amid persistent inflation, the country's competition watchdog said in a report on Tuesday.

The report is the result of a months-long investigation by the Competition Bureau Canada as stubbornly high grocery prices weigh on the cost of living.

The bureau urged governments to implement policies to support independent grocers, including limiting the use of property controls for new businesses that "make it difficult, or even impossible" to open grocery stores.

In 2022, Canada's three largest grocers - Loblaws, Sobeys, and Metro - collectively reported more than $100 billion in sales and earned more than $3.6 billion in profit. These operators have also faced pressure from Canada's opposition New Democrats Party (NDP) for high grocery prices.

Domestic retail giants have benefited from demand for essential grocery items, even as the prices of store-bought food outpaced the annual inflation rate for 10 consecutive months last year.

Drawing on the experiences of other countries, such as Australia, the bureau further said the entry of international and discount grocers could drive down prices.

Government data on Tuesday showed that grocery prices continued to surge, rising 9% year-over-year in May, while remaining nearly unchanged from the increases recorded in April.

Last year, the Canadian Parliament supported a proposal by the NDP to impose tougher penalties for price-fixing.

(Reporting by Juveria Tabassum in Bengaluru; Editing by Anil D'Silva)