more than meets the CPI

Each month, with seemingly bated breath, a large swath of the Canadian population awaits the latest release of consumer price data from Statistics Canada. Our interest in these data have been transformed by generationally-high inflation over the past couple of years that has a) reinforced our lived experience of a much more expensive world and b) led to generationally-high interest rates. While these higher rates have benefitted those able to sock away money into GICs or other investment vehicles offering higher-than-usual returns, they have been an annoyance at best or catastrophic at worst for those with debt. Almost to a person, we’d like inflation to be lower and, as an extension, interest rates to be lower, too.

With this in mind, it was understandable that the hot-off-the-presses take on December’s inflation rate coming in at 3.4%—up from 3.1% in November—wasn’t positive.

While I’m not here to necessarily make anyone feel good about this latest data point in the ongoing battle we’re having with inflation, a couple of mitigating features of this new data are noteworthy.

First, prices in Canada actually fell between November and December. Indeed, the value of the Consumer Price Index (CPI), the basis for the inflation rate calculation, slipped by 0.5 points, from 158.8 to 158.3. The reason inflation rose was in fact entirely due to the so-called “base-year effect”—between November and December 2022 the CPI fell by 0.9 points, which was more than it fell between November and December 2023—and not due to current-day inflationary pressures.

Second, if we exclude the mortgage interest cost component of the CPI, the basket of all other goods and services rose in value by only 2.5% in the 12 months to December—an inflation rate that’s smack-dab in the Bank of Canada’s target range of 1-3%, and the 7th month out of the past eight where the ex-mortgage-interest inflation rate was below 3%. 

By no means are we out of the woods when it comes to inflation, but the situation is improving and stabilizing, which is in turn clearing a path for Bank of Canada interest rate cuts beginning in Q2 of this year.