MNI INTERVIEW: Used Car Quality Also Matters In Canada CPI Fix

Statistics Canada will act much like any used car buyer next month when adding that product to the Consumer Price Index, looking not just at sticker prices but traits like mileage and models to ensure the inflation rate isn't thrown off by swings in the quality of vehicles on the market.

The agency is starting out with JD Power data on purchases from dealerships, in part because their figures come with those richer traits, Senior Analyst Taylor Mitchell said in a phone interview. Before, new car prices were used as a proxy for used because they moved in tandem, a relationship that frayed as the pandemic triggered shortages of microchips for new cars, putting used ones at a premium.

"We would contend that in the private market… prices would still move relatively similarly to those in dealerships,” Mitchell said in a phone interview. “We're always working towards making it more and more reflective of Canadians’ lived experiences with inflation.”

March's 6.7% inflation rate would have been 6.9% if used cars were included, the agency found. Some market economists expected a bigger gap after the surge in U.S. prices, and claimed some of the most intense inflation in Canada was missed earlier in the pandemic.

Used car data will be incorporated into the next CPI report due in June and past figures won't be revised, according to a technical paper, in line with StatsCan and international regular practices.

Asked about gathering used car prices from other sources like online brokers or Kijiji, Mitchell said that's possible but for now the focus is on closing a one-month lag in used car data and gathering more granular quality indicators.

DIFFERENCES WITH AMERICAN PRICES

StatsCan's research found reasons for a more modest push from used cars from its American counterpart. That item is a smaller weight in Canada's CPI basket at 1.84% compared with 4.14% in the United States. Different models are also more popular in each country and some of the jumps in U.S. prices were tied to the different scope and timing of Covid restrictions and stimulus payouts.

“The largest uptick in vehicle prices in the U.S. occurred pretty much in tandem with that third stimulus check that came out in the spring of last year. And that stimulus check came out at the same time as tax return season, which put a decent amount of money into the hands of the average American,” she said.

The CPI advanced 6.8% in April, the fastest since 1991 when the BOC adopted inflation targeting amid a new federal sales tax. Price gains are on the cusp of quickening to the fastest pace since the early 1980s, feeding bets the central bank will hike 50bps at its June 1 meeting with a small chance of 75bps.

StatsCan is also moving to update the CPI basket on a yearly basis, reflecting more current data from the national accounts used to calculate GDP and heightened interest in changing spending patterns through the pandemic.

"Now it's more important than ever for us to be able to capture those moments and ensure that the CPI is representative of what Canadians are actually buying," she said.