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Canada reweighted its CPI inflation basket Wednesday, boosting the significance of housing expenses that surged before and during the pandemic, while also accounting for the role of Covid-19 in scaling back commuting to work, adding a new risk price figures will keep coming in faster than the central bank expects.
Shelter has grown to a record 29.78% of the CPI basket based on weightings from 2020 spending patterns, Statistics Canada said, up from 26.92% in the prior edition from 2017. Household operations, furniture and equipment rose to 15.21% from 12.98%. Those gains came mostly at the expense of the transportation category, and the new weights will be included in the next inflation report for June due next Wednesday.
"While interest rates fell at the onset of the pandemic and remained at record-low levels for the rest of the year, consumers directed a greater share of their expenditures to mortgage interest due to rising home prices and the increased number of new mortgages," Statistics Canada said.
Housing price gains have set fresh records during the pandemic as millions shifted to working from home and people sought more space during lockdowns, surpassing year-over-year jumps of 30% recorded during a condo boom in the last decade. Home price increases have consistently outpaced investor and central bank expectations for a slowdown, fueled by bidding wars, low interest rates and population growth.
LASTING BASKET CHANGES
The basket update was delayed from February because of the pandemic, and StatsCan will redo its work again next year. The agency by year-end will also publish update to a CPI index that's more up-to-date on pandemic spending patterns. That alternative index showed inflation was several tenths of a percentage point faster than official CPI earlier this year. Most of today's results are in line with what an official told MNI about the changes in May.
"Shifts in spending due to the pandemic may lead to more permanent changes as remote work becomes more common, consumers increasingly rely on online shopping and households direct a relatively higher share of expenditures to shelter costs," the agency's report said.
Inflation in May gained 3.6% from a year earlier, the fastest in a decade, and the BOC last week said prices will exceed its 2% target on a full-year basis through 2023. The Bank tapered back QE for a third time while holding a record low 0.25% interest rate.