This is the third post in the Price Inflation in Canada series, originally written for my Canadian price inflation explorer & calculator app. The first looked at what inflation is and where it comes from, and the second at why Canadians should care about inflation.
How is inflation measured, and who measures it?
Inflation varies by country and currency. Government statisticians in a particular country usually measure the country’s own inflation.
In Canada, inflation is measured by Statistics Canada. The principal measurement of changes in Canadian consumer prices is known as the Consumer Price Index (CPI). In the United States, the Bureau of Labor Statistics also measures and reports a CPI, although the U.S. CPI measures inflation for prices in U.S. dollars in the U.S. economy.
There are many measures for inflation, but Statistics Canada’s CPI is the one of primary interest to Canadian consumers. Statistics Canada produces the CPI each month by measuring prices for a basket of goods and services. The basket contains quantities of specific goods and services, weighted according to how much consumers buy on average. From time to time, Statistics Canada changes what’s in the basket to reflect evolving consumer needs (e.g. adding mobile phones in the 2000’s.)
Is inflation the same everywhere in Canada?
Prices within a country, and the changes in those prices, do vary from region to region based on local economic factors. Statistics Canada measures inflation for the nation as a whole, as well as for the provinces, territories, and certain metropolitan regions.
Consider the cost of housing: in popular and growing cities, rents and real estate prices can rise faster than in other cities. Similarly, local availability of a product in one region (e.g. fruit, or fish) may result in lower prices than for a region where the product is imported at a cost. Additionally, the pace of economic growth (or lack of it) for a local economy also has an effect on local prices.
Do all prices go up, and at similar rates?
Most prices go up over time, but some product groups have become cheaper. If you’re a buyer of computers or consumer electronics such as digital cameras, you may have noticed these products cost less today than five or ten years ago. Improvements in technology and productivity that outpace average inflation can lead to some items having lower prices than in the past.
Supply and demand also play a role in prices. When demand for a product group increases, the price increases for the product group can outpace inflation. In some cases, changes in regulation play a role (e.g. changes in taxes on tobacco products.) Fluctuating foreign exchange rates are also a factor in the prices for imported and exported products.
The next post looks at what you can do to protect your savings from inflation risk.