When it comes to calculating inflation, housing costs pose a peculiar challenge.
The consumer price index is meant to show how a basket of goods has changed in value over a month or a year. But most people don't buy houses all that often and when they do they usually don't pay with cash.
So in attempt to have the cost of housing included in the CPI, Statistics Canada treats housing differently than the other items being measured. Rather than a straight measure of the cost of houses, the agency looks to measure "a selection of costs that are specific to homeowners."
That leaves economists measuring rent (1.2 per cent higher year-over-year), mortgage interest cost (-2.2 per cent), replacement cost (3.2 per cent), property taxes (3.5 per cent), home and mortgage insurance (4.9 per cent), maintenance and repairs (1.5 per cent), electricity (4.3 per cent), water (6.3 per cent), natural gas (-2 per cent) and fuel oil (31 per cent).
Put it all together, and you get a category in the CPI called "shelter," which gained 2.4 per cent year-over-year. The category accounts for 26 per cent of the total CPI calculation.
It sounds relatively straightforward, but it gets tricky when it comes to mortgage interest costs.
"The amount of mortgage interest owed by Canadian households depends both on the amount borrowed initially and interest rates at the time of purchase or when a mortgage is renegotiated," a TD Economics report noted.
"However, because at any given time the number of new homes being purchased is fairly small in comparison to the total stock of mortgages outstanding, current mortgage interest costs have a very long memory of past home price changes."
In other words: even though mortgage rates have been increasing, they still are pulling the shelter component of the CPI lower because we've just gone through an extended period of record low rates.
"The interest component of mortgage interest ... changes only with the amount of newly created or renegotiated mortgages, which tend to be small compared to the overall stock," TD stated.
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