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A LITTLE LESS OF THIS, A LITTLE MORE OF THAT As consumer spending evolves, so too does the mix of items that the Consumer Price Index comprises as a means to more accurately reflect the day-to-day price changes affecting Canadians.
Underlying the headline-news-making “inflation” statistic is the Consumer Price Index (CPI), which is constructed by Statistics Canada using a representative “basket” of goods and services with varying weights. Ultimately it is the month-to-month changes in the prices of these goods and services, filtered through their respective weights within the basket, that conspire to yield a singular CPI figure on which we calculate the rate of inflation. That each good and service has its own weighting within the CPI is important: for example, because Canadians tend to spend more of their budget on gasoline than on milk, a 10% increase in gasoline prices should—and does—have a greater impact on the CPI (and on inflation) than a 10% increase in milk prices. Between 2015 and 2021 there have been some notable changes in the CPI basket weights. Of those that increased over the past six years, the largest change was in shelter,
which now accounts for almost 30% of the CPI calculation. The rising cost of housing— both ownership and rental—is well documented and thusly reflected in the changing basket weights. Other categories seeing increased weighting include household operations, furnishings and equipment, and alcohol, tobacco, and cannabis (a 2020 lockdown effect?). The weights of all remaining high-level goods and services categories decreased from 2015 to 2021, with the largest decline coming to transportation (which fell from 19.7% to 16.9%). Interestingly, this diminished weighting comes even as the gasoline portion of the transportation category has expanded. As we consider the path ahead for inflation, the composition of the CPI is helpful to understand, with shelter costs playing a more elevated role in the determination of overall inflation—and Bank of Canada interest rate policy—than ever before.
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