indicatorThe Twenty-Four

Some quick facts about the Consumer Price Index

The CPI provides us with a great measure of the general direction of price change over time

By Rob Roach, ATB Economics 22 November 2022 2 min read

Inflation is in the news and rightly so; we haven’t seen inflation rates this high in Canada in decades.

The rates in question refer to the year-over-year* movement in the monthly Consumer Price Index or CPI.

Here a few key things to know about the CPI:

Calculated by Statistics Canada, the CPI “represents changes in prices as experienced by Canadian consumers. It measures price change by comparing, through time, the cost of a fixed basket of goods and services.”

The CPI provides us with a great measure of the general direction of price change over time for consumers as a whole, but the effects will vary from household to household. For example, a family with four teenage athletes is likely to feel the rising cost of milk more intensely than a lactose-intolerant couple with no kids.

The CPI basket includes hundreds of goods and services purchased at the retail level by consumers, but it does not include everything bought and sold in the economy. The steel bought by manufacturers, for example, is not included (you need to use the Industrial Product Price Index for this information).

The items in the CPI basket are grouped into eight main categories: food; shelter; household operations, furnishings and equipment; clothing and footwear; transportation; health and personal care; recreation, education and reading; alcohol beverages, tobacco products and recreational cannabis.

The items and their weights are updated as spending patterns change. For example, blank CDs have been replaced in the basket by music streaming services.

Statistics Canada adjusts for “shrinkflation (i.e., changes in the quantity or quality of the items in the basket). If for example, the price of a typical bag of chips stays the same, but the amount in the bag goes down, this is taken into account.

The most commonly cited inflation rate (sometimes called “headline,” “total” or “all-items” inflation) includes everything in the CPI basket.

The Bank of Canada, however, has three “preferred” versions of the CPI aimed at measuring “core” inflation. Somewhat ironically, the “preferred” measures (known as CPI-trim, CPI-medium and CPI-common) do not correspond to the definition of “core” inflation that gets the most attention, which is just the all-items CPI excluding energy and food.

Lots more information on the CPI can be found on the Statistics Canada website via its CPI portal.

*Prices in a given month are compared to prices during the same month one year earlier.

Answer to the previous trivia question: President John Adams was the first U.S. President to live in the White House. He moved in on November 1, 1800.

Today’s trivia question: True or false: Property taxes are included in the calculation of the Consumer Price Index.

Headline inflation in Canada was 6.9% in October 2022

Headline inflation in Canada was 6.9% in October 2022

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