MNI INTERVIEW: Canada Revamps CPI After "Unprecedented" Shifts

An overhaul of Canada's CPI basket in July will reflect unprecedented shifts in spending patterns during the Covid-19 pandemic, though it remains unclear how much of the pickup in inflation recorded in preliminary data will feed through to the final calculations, the assistant director of Statistics Canada's consumer prices branch told MNI.

While early figures show families spent more on housing and less on transportation during the pandemic, the July update will include richer data from Canada's provinces that may show different trends based on local shutdowns and re-openings, Chris Li said in a telephone interview.

"It's not as a dramatic a shift of these patterns as we saw at the onset of the pandemic, we still see that some of the shifts have persisted," Li said, adding that the work may need to be updated a year later if spending patterns change again. "Typically spending patterns change slowly and do so in response to shifts in income levels, or demographic changes or developing habits or technology, but with the pandemic, this was unprecedented."

It is still unclear whether the inflation rate will be bumped up by several tenths of a percentage point as indicated in some of the preliminary re-weighted data published through February, she said.

The official inflation rate rose to the highest in a decade at 3.4% in April, reflecting a comparison to weakness last year as lockdowns began and a supply glut reduced gasoline prices. Bank of Canada Governor Tiff Macklem has said inflation will top out around 3% and later fade because of slack in the economy, and has signaled near-zero interest rates will not rise until the second half of next year when prices stabilize around the 2% target.

TRACKING ONLINE SALES

Provisional figures published earlier this year incorporating some of the pandemic spending changes showed a 1.5% inflation rate in February, higher than the official 1.1% figure. If that gap holds up or increases in the new CPI basket, true inflation in April might have been closer to 4%.

Statistics Canada delayed the overhaul of the CPI basket from January to July because of the pandemic. July's touch-up for the first time will pull in more recent data from the national accounts used to create quarterly GDP, she said.

The update will also continue the shift towards more digital price data from store scanners and website scraping, Li said. With store visits to check out prices suspended during the pandemic, this shift put the agency in a good position to keep up with the surge in online purchases during stay-at-home restrictions.

Digital price collection is overtaking in-store visits and leaving a just handful of stores in Canada's far north that still require phone surveys or looking at fliers. "Because of the pandemic and with these new data sources that we've been able to get our hands on, we can monitor the recovery closer, so that we can make that interim adjustment if needed," Li said.

Statistics Canada normally updates the roster of products included in the CPI, and the weights given to each of them, every two years. The current version is based on a framework introduced in January 2019 with data from the 2017 Survey of Household Spending.

NOT RETURNING TO NORMAL?

The percentage of family budgets devoted to housing has climbed, but the impact on the inflation rate isn't clear cut, Li said. The CPI on housing mainly covers the cost of maintaining a home and mortgage payments rather than sale prices. Surging costs for building materials are pushing up maintenance costs, and rock-bottom mortgage rates make financing cheaper.

"What we saw mainly was that the growth in home prices has accelerated over the past year due to higher input costs and increased demand for larger homes," she said.

MNI has reported on how the agency has already upgraded some CPI data on housing, part of a push to better understand a boom that's led to tighter borrower stress tests and warnings from the BOC. The housing boom intensified in the pandemic as people sought bigger homes outside major cities to ride out the pandemic.

Overall spending in 2021 so far looks more like 2020 than before the pandemic, Li said. "It's not yet clear that 2021 will be the same as the previous normal of 2019, so we wanted to make sure we account for these changes when we release the new basket in July."