Canada CPI: Cannot Properly Interpret?

The year-on-year increase in Canada's consumer price index (CPI) accelerated modestly to 0.5 percent in September, up from 0.1 percent in August. The increase was quite broadly-based, with the sub-indices for transportation, education, recreation and shelter all moving higher, according to Statistics Canada. The increase in the headline index was moderated by continuing weakness in the price of gasoline, which stood 10.7 percent below its September 2019 level. Excluding gasoline, the year-on-year increase in CPI was 1.0 percent in September, up from 0.6 percent in August.  

There is nothing particularly surprising about any of this, but today's release contains all sorts of tantalizing hints about possible changes in how we look at CPI in the future. It's worth recalling that Bank of Canada Governor Tiff Macklem has expressed his concern over the fact that many Canadians do not feel that the official inflation data do not reflect their own daily experience. It appears that StatsCan is on the same page as the Governor here, and plans to do something about it.

Today's release links to a special report which looks at how the COVID pandemic has moved consumer spending patterns away from the basket weights used to construct the CPI. Spending related to household operations has gone up, while spending on travel and on new motor vehicles has fallen. Adjusting for these and other changes, StatsCan estimates the year-on-year rise in adjusted CPI for both July and August was 0.4 percent, compared to the reported 0.1 percent gain for the headline measure; note that September data are not yet available. These revisions certainly move the numbers closer to what most Canadians would perceive their experienced inflation rate to be, though it is all but certain that a survey would find that most people would estimate that inflation is considerably higher than any of these figures.  

And here's the most intriguing twist of all: very soon, people will not longer have to guess what their own actual inflation rate is. At the end of today's release StatsCan reveals that the "Personal Inflation Calculator" is "coming soon". Canadians will be able to use their own spending figures to create their own basket weights and generate their own CPI, which they can then compare to the published data. It seems unlikely that many people will go to the trouble of doing this, but it may well provide a useful tool for journalists and bloggers looking for ways to second guess the Bank of Canada.

Decades ago, while working in a bank economics department in Toronto, your humble blogger took a call from a female client who felt that the CPI was understated -- this in an era when the headline number was almost certainly in the double digits. She revealed that she did not own a car, so what was the increase in CPI excluding the price of gasoline, insurance and so on? I wasn't able to help her then, but if she happened to get in touch again in a few months' time, I might be able to do a better job.