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“Is Inflation Understated” in Canada? You Bet: National Bank

May 26th, 2017 | by Richard Paul
“Is Inflation Understated” in Canada? You Bet: National Bank
Lifestyle
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This is how.

We have long lamented the persistent understatement of soaring US housing costs in the Consumer Price Index, and thus the understatement of overall inflation as experienced by people with a roof over the head. But now two economists from the National Bank of Canada spell out their doubts about the housing inflation component in Canada’s overall CPI.

The Consumer Price Index in Canada rose 1.6% in April year-over-year seasonally adjusted, Statistics Canada reported last week, same as in March, but down from 2.0% in February. Over the past four years, CPI inflation ranged from 0.4% to 2.4%.

For inflation lovers, it was too tame. But Canadians – like Americans who’re in a similar boat – have long complained that life overall is getting a lot more expensive a lot faster than reflected in the CPI. And a big part of that expense is housing costs for owners and renters.

Canada’s house price bubble has become one of the hottest and longest-running in the world, having barely dipped during the housing bust in the US. The Teranet-National Bank House Price Index, which uses a similar methodology of sales pairs that the Case-Shiller index in the US uses, has surged over 100% since 2006 (red line, right scale). The year-over-year increases in much of 2016 and all of 2017 have been in the double digits (blue columns, left scale):

 

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Wolf Richter

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