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THE CPI, SERVED 4 WAYS In an evermore-complex price environment, simplistic and narrowly-focused assessments of inflation are not sufficient to unpack the true price change narrative.
How many of us, at some point in 2021, have remarked at how much something costs? A few obvious examples come to mind, including the soaring price of lumber (which quadrupled in price and now sits at or below its pre-pandemic level), the cost of restaurant meals, how much it costs to fly...to Calgary of all places!... and the list goes on. These are all valid examples of goods or services whose prices have changed dramatically during this year and last, but when considering what inflation looks like for the economy as a whole, it’s simply too much of a narrow focus to hone in on the prices of singular commodities or, for that matter, singular measures of consumer price inflation. A quick primer: “inflation” as one will commonly hear it referred to as, is the change in the Consumer Price Index, or CPI. The CPI is a number that is produced each month that reflects the cost of an underlying basket of goods and services. As the prices of things go
up, the CPI will go up as well, and vice versa. The calculation of annual inflation, then, is made by comparing the CPI in one month to the CPI in the same month of the previous year. The most recent reading on inflation indicates that prices are rising at 3.7% on an annualized basis, which is outside of the Bank of Canada’s stated goal of maintaining inflation in the 1-3% range. But because this headline inflation number includes numerous volatile items (like gasoline and food), additional measures of CPI change have been developed (including “trim”, “median”, and “common”). These measures of inflation show prices running less hot than the headline number, complicating the narrative around actual price changes. While prices are indeed rising faster than they have in years, there’s no need to get bent out of shape about inflation—yet.
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