rates
UNPACKING THE BASKET As in most of our own household budgets, the cost of shelter is the single largest line item in the CPI. It contributes to inflation in ways that are both diverse and significant.
Inflation is commonly understood as a single number, expressed as a percentage, representing the change in prices from one year to the next. The way in which that number is derived by Statistics Canada is through the Consumer Price Index (CPI) which uses a “basket” of goods and services that seeks to represent the average consumer’s household spending. The basket of goods and services is weighted in order to allocate greater significance to those goods and services that represent a greater share of household spending (things like shelter, food, and transportation) while placing less significance on things households spend less on (think clothing, alcoholic beverages, and health care). Shelter cost, at 30%, is the single largest component of the CPI and as such carries the biggest influence on inflation of any of the categories. Shelter itself, however,
can be broken down further into three categories, which each have their own sub-categories, and their own changing values over time. To understand how shelter factors into inflation, one cannot simply look at housing prices, or rents, or interest rates because there are far more influencing factors at play. Looking at the most recent month of inflation data, where the headline rate was 5.2%, shelter costs increased 6.1% over the same period. That breakdown of the shelter components show wildly different results with rent increasing 5.4% year-over-year, mortgage interest up 23.9%, and electricity down 2.3% to name a few. As we move through 2023 and with inflation expected to continue on its downward trajectory, shelter will continue to play an outsized role, and parsing its contribution will take nuance.
18
rennie.com
Made with FlippingBook - professional solution for displaying marketing and sales documents online