Inflation level really not as high as it seems: Report
For many Canadians, higher inflation is a foregone conclusion. It’s no longer a matter of if we will experience it, but how soon it will be here.
And if consumers truly believe prices will be higher in the future, they should be out buying goods today. After all, why wait for higher prices?
But what if, as a recent C.D. Howe Institute paper argues, Canada's inflation is actually quite a bit less than advertised?
According to McGill University economist Christopher Ragan, the way Statistics Canada measures changes to the cost of living regularly causes to overstate inflation.
Stats Can says inflation is running at 2.4 per cent. But Ragan’s figures suggest it’s closer to 1.8 per cent.
That’s because the agency doesn't often adjust the weights of the various goods within its "basket" to reflect shifting tastes among Canadian shoppers.
It’s bad enough to live in a world in which the value of our money is continuously eroded by inflation but even worse when we don’t measure this erosion accurately, Ragan says.
Consumers may see it otherwise, of course, but Ragan maintains that's because we tend to fixate on a few frequently purchased items as food and gasoline.
The things we buy less often – electronics, say, or furniture and appliances – are likely to be much less volatile, even declining in price or at least rising much more gradually, he argues.
The report pegs the cost to the public purse at hundreds of millions of dollars annually since, if Ottawa were to revamp its calculations, Canadians who receive pensions and other social payments that are periodically increased to match inflation would see smaller increases in the future.
To say nothing about higher taxes since all the basic deductions on your tax return are indexed as well.
What do you think: Do published inflation numbers even come close to reality? Are you seeing prices rise on the goods and services you buy?
By Gordon Powers, MSN Money