“It’s difficult to understand that the Consumer Price Index (CPI) increased by 3.8% when we look at the increase in its components. The item “Current expenses” seems to have a much larger proportion than I would have imagined. It would be interesting, in a future article, to indicate the percentage of each of the components in the consumption basket. » – Pierre Dubé “I am certain that inflation is higher than the announcements tell us. » – Jean-Paul Bourgeois
Like these two readers, many people believe that the inflation rate is much higher than that measured by Statistics Canada’s CPI.
The gap between perceived and actual inflation has never been greater, the Bank of Canada found in its most recent consumer outlook survey.
This is normal, according to Benoit Durocher, director and senior economist at Desjardins. “Consumers mainly rely on the prices of the goods and services they consume the most and which are easily observable, such as food or gasoline,” he explains.
Food and gasoline are components of the Consumer Price Index, which has several hundred components. Food is one of the eight main categories of the CPI published each month by Statistics Canada, while gasoline is an element of the Transportation category.
Each of these components does not have the same weight in its category and each category does not have the same weight in the index, to reflect a consumption basket of Canadian households that is as representative as possible.
For example, the Current Expenditures, Furnishings and Household Equipment category, one of the CPI’s eight main categories, includes hundreds of different components, from LED light bulbs to wireless phone services to dog food.
The prices of all these components constantly fluctuate, up and down, and the amalgam of these changes gives the variation of the entire category for a given month. It is therefore possible, for example, that the price of household appliances, which is also part of the Current expenses, furniture and household equipment category, has fallen considerably, but that an increase is observed for the category as a whole.
We should also not confuse falling inflation with falling prices, underlines the Desjardins economist. “Inflation is an increase in prices, and if its level falls, that does not mean that prices are falling,” he explains.
The composition of the basket of goods and services and the relative weight of each of these goods and services in household spending are reviewed regularly by Statistics Canada to reflect reality.
Components can be removed (such as DVD rental) and others added (recreational cannabis), and their relative weight is also adjusted periodically.
What must be remembered, according to Benoit Durocher, is that the CPI does not reflect the consumption of a particular person or household, which explains the difference in perceptions of inflation.
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