Inflation is an odd beast, sparking frequent debate that the official measure either understates price increases or exaggerates them.
For now, inflation is hardly hot. The latest tally shows Canada’s consumer price index slowed this summer to a tame 1.3 per cent. It’s been running at 2 per cent or less since March.
Statscan will release the CPI for August on Friday. Economists expect the pace of inflation will stay at a 1.3-per-cent annual rate.
Core inflation – which strips out volatile items such as fruit – has been “softer than expected” in recent months, the Bank of Canada noted in its interest-rate statement this month. The central bank expects both inflation measures to return to 2 per cent in the next year.
So if the stats show little pressure, why aren’t spiking gasoline prices, tuition hikes, pricier breakfast cereal or a hot real-estate market showing up in the headline numbers?
One reason is the lag – the most recent numbers are from July, when pump prices were lower than a year earlier. Another factor is the prices for items consumers buy most frequently – milk, eggs, gas – are rising most, while prices are ebbing among less frequently purchased items, such as computers.
Lastly, there’s how Statistics Canada captures housing. The agency tracks shelter costs through measuring rent, mortgage interest costs, insurance and depreciation costs.
That approach came under scrutiny last week when the C.D. Howe Institute said the CPI has failed to capture this year’s run-up in house prices. It suggested the agency develop another indicator, similar to one used in Australia, to better capture housing booms and busts.
Meantime, Statscan is halfway through a five-year CPI enhancement initiative, which attempts to improve the precision of its measure and ensure its index reflects up-to-date spending habits.
The aim is to improve the accuracy in the CPI, said Richard Evan, director of the agency’s consumer prices division, adding that the effort could have a dampening effect on the inflation rate.
The agency has no plans to develop a regular indicator to track house-price inflation, he said. It will, however, release a study in the next year on how the CPI would look if other house-prices measures were used.Report Typo/Error