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When it is announced that inflation is x % for the month of May, how is it calculated?
Lisette Provencher
Inflation reflects the consumer price index (CPI). Statistics Canada reported a 6.7% increase in the CPI in April 2022 compared to April 2021. For several months, every month, we have been revealing rising indices.
According to the Bank of Canada, inflation is “a persistent rise in the average level of prices over time”. And it is the prices of all goods consumed that are constantly analysed, calculated and weighted. These are detailed by Statistics Canada.
The weighting of the consumer price index (CPI) basket of goods and services has also been updated for June 2022.
You can consult the basket on the Statistics Canada website. This weighting now takes into account used cars, according to a new calculation. There are slight variations in all the categories of the basket from 2020 to 2021 (accommodation, food, alcoholic beverages, etc.). The increase for gasoline and energy is more significant, meaning that Canadians’ spending on gasoline and energy represents a higher percentage of their spending on goods and services.
A mean calculation
So how do we calculate inflation? “First step, we look at what people buy, answers Jocelyn Paquet, economist at the National Bank. It varies over time and from person to person. Statistics Canada will do studies to find out what the average Canadian buys, with a weight on the side [pondération]. Of course, no one in Canada represents exactly that weight. Then, we build a representative shopping basket. »
It is important to note that there may be significant variations depending on income. “Some things like energy and food weigh more for people who have lower incomes,” cites Jocelyn Paquet as an example.
Discretionary material goods occupy a larger share of the basket of the most affluent households. Unfortunately, the index cannot illustrate these variations since it represents the average basket.
Jocelyn Paquet, economist at the National Bank
Step two determines the price change in each category from month to month. “To do this, Statistics Canada uses several methods such as telephone surveys, data collection on the Internet or even good old field surveys,” says Jocelyn Paquet. Over time, collection methods have been refined to ensure that the CPI reflects price developments as closely as possible. The weight of each item also adjusts from month to month to take account of price variations. For example, if the price of gasoline increases significantly from month to month, Statistics Canada will assign a greater weight to this item in the subsequent month’s index. »
Third step: we weight the price increases according to the weight of each item in the basket to arrive at a monthly variation for the basket as a whole.
When we get inflation at 6.7%, it’s a percentage of a month compared to the same month the previous year.
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