Canadian Manufacturing

Inflation causing cost-of-living to rise, dollar weakens across industries

The Canadian Press

Financing Manufacturing Regulation Risk & Compliance Infrastructure Public Sector banking cost Economy Government inflation Manufacturing regulation taxes

Getting the inflation number right is important because so much is based on it, including Bank of Canada rate decisions and cost-of-living adjustments.

It used to be said that a penny saved was a penny earned, but rising prices helped push out the penny years ago, and with inflation now running at well over seven per cent, it’s eating into every nickel and dime.

So while inflation is clearly happening, accurately capturing in a single number all the various price changes across the Canadian economy is much less straightforward.

“It’s a very, very tough concept to measure, particularly in more or less real time,” said Derek Holt, head of capital markets economics at Scotiabank.

Getting the inflation number right is important because so much is based on it, including Bank of Canada rate decisions and cost-of-living adjustments for pensions and some social payments, as well as being widely used as a reference for wages, rent, and child support payments.


There have been numerous method changes to make it more accurate since the government first started to track inflation in 1914 as war in Europe, record-high immigration and land speculation were driving up prices, but the data still attracts a fair amount of skepticism.

The Bank of Canada and others have noted that Canadians often think inflation, as measured by the consumer price index (CPI), is running hotter than official data, but it’s not just average consumers who find it hard to trust the numbers.

Holt wrote a report in December about the “fake data” Statistics Canada was providing for its inflation rate that is “plagued by uncertainties,” while businessman turned blogger Frank Giustra wrote in a Toronto Star column in January about the “fantasy math” of U.S. inflation data produced by an agency using “deliberate obfuscation” to keep the number low.

The Bank of Canada relies so much on the data that it has periodically checked in to try and gauge for itself just how accurate the number is, and the most recent answer, going back close to a decade, is that CPI probably overstates inflation by about 0.5 per cent.

The list of more than 500 goods and services that Statistics Canada tracks stays fixed month to month so that there can be a clear comparison of products, said Taylor Mitchell, a senior economist at the federal agency.

“We only compare, month to month, like products and we ensure that they really are truly like.”

That includes correcting for product weights and quantities to account for any shrinkflation, she said.

To minimize the problem of shifting consumer habits, which changed especially fast during the pandemic, Statistics Canada moved to updating its product list every year. The change, which took effect with May’s 7.7 per cent inflation read, also allows the agency to update how much each product influences the overall number, with things that people spend more on having a bigger effect.


Stories continue below