Housing, alcohol and weeds: Canadians’ pandemic spending habits are changing the way inflation is measured

The overhaul could boost confidence in a number that some say has little to do with everyday life

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Statistics Canada has revamped the basket of goods and services it uses to measure inflation, reflecting how the pandemic and lockdowns have changed the spending habits of Canadians.

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Among the new entries on the list of roughly 700 items that make up the Consumer Price Index (CPI) basket are video game consoles and shipping costs, symbols of a year spent crouching at home , as Canadians sought to escape boredom on their screens and ordering stuff online.

Contact lenses, hair care products and perfumes have declined in importance, items that now represent such a small percentage of a typical household’s purchases that Statistics Canada has decided to stop publishing their price changes, said Heidi Ertl, Director of the Federal Ministry of Health. agency.

Canadians don’t necessarily buy less of these things; instead, they spend a higher percentage of their budget on other goods and services. The biggest changes have been in housing spending, which now accounts for almost a third of the CPI basket, and alcohol, cigarettes and cannabis, which now account for a larger share of the budget. of households than clothing and footwear.

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“Normally these changes happen slowly over time and are the result of various changes (such as) in demographics and consumption patterns, but with the pandemic things have changed very, very quickly,” Ertl said. on the CPI basket, adding that accelerated COVID-19 have prompted the agency to speed up its plans to adjust its approach to measuring inflation.

The CPI could be the most important figure generated by Statistics Canada. The Bank of Canada uses it to set interest rates, governments use it to set benefits, and businesses and unions rely on it to negotiate wages.

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A shopping cart overhaul could boost confidence in a number that some say has little to do with everyday life. The Bank of Canada encountered significant doubts about the CPI during its survey research in 2020, a concern that skepticism about how officials measure inflation could undermine confidence in the central bank’s ability to control inflation.

The CPI was already becoming obsolete before the pandemic, as it had not been updated since 2017. The unique economic circumstances of last year only exaggerated the need for an update, as the Canadians’ line items have changed dramatically in real time. The transportation component, for example, made up nearly a fifth of the pre-COVID basket but now only accounts for 15 percent. This is because home orders and travel have eliminated the need for vacations and travel.

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Now that Canada’s vaccination rates are among the highest in the world, normal activities are expected to resume over the summer, including travel. This means that a CPI based on 2020 spending habits could quickly become inaccurate if Canadians revert to their previous habits. But Statistics Canada has a plan for that. Last year, the agency began releasing an adjusted version of the inflation figures to better reflect current spending, as the weights used for the official CPI remain fixed between official revaluations. Statistics Canada will continue to release the adjusted measure for reference, Ertle said.

“Consumption patterns will likely continue to evolve as we enter our recovery period, which is why the adjusted price index will continue to be used, along with the official CPI, to play a key role in measuring very fluid economy, ”she said.

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Meanwhile, the CPI will now better mimic the surge in real estate activity that occurred during the pandemic. The weighting assigned to the housing segment of the basket increased from 27% to 30% in 2017. The weighting of mortgage interest fell from 3.3% to 3.68%.

“While interest rates fell at the start of the pandemic and remained at record levels for the remainder of the year, consumers spent a greater share of their spending on mortgage interest due to rising mortgage rates. house prices and increased number of new mortgages. ” Statistics Canada said in a report on the reassessment.

Although major markets are showing signs of slowing after a frenzied spring of activity, Ertl pointed out that the agency does not factor home prices into the CPI, but rather the costs associated with home ownership. ownership and rental.

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As Canadians spent more time furnishing and improving their homes, the weight of this section of the basket rose from 3.6 percent to over five percent. In addition, they spent more on alcohol, cigarettes and cannabis, which justified a reweighting of this category from just over three percent to almost five percent.

The new CPI basket will come into effect with the release of June inflation data on July 28, and the agency will now reassess the weights each year to provide more accurate pictures of the price pressures facing Canadians.

Correction: An earlier version of this story incorrectly stated that contact lenses, hair care products, and perfume were removed from the CPI basket. These items are still part of the CPI calculation, but Statistics Canada will no longer publish data on them because they no longer represent a significant percentage of household purchases.

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