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Every year, StatsCan tweaks how it calculates inflation. What to know about this year’s changes

Every year, Statistics Canada tweaks how it calculates inflation. After this year's change, food will make up a bigger chunk of the overall inflation number going forward. CBC News breaks down what the CPI basket is and what the changes mean.

Canadians dedicated more of their budget to food in 2023 than in previous year

A senior looks over prices of meat in a supermarket.

Whenever you pass through the cash register at a grocery store, the price of everything in your shopping cart — from discounted chicken to strawberries on promotion — is collected by the retailer and sent to Statistics Canada.

That's just one of several ways the data agency tracks the spending reflected in its consumer price index, or CPI: Canada's most comprehensive measure of inflation.

CPI is broken down into eight categories — called "baskets" — meant to show the average cost of a group of goods and services. There's a food basket, a transportation basket and a shelter basket, among others.

When taken together, these baskets make up the overall CPI number, or the so-called headline number that you see in our reporting every month. But they each hold a different "weight" in the overall CPI, depending on how much Canadians spend on one basket relative to the others.

Every year, Statistics Canada conducts a review of those categories. After this year's change, food will now make up a bigger chunk of that overall figure, because Canadians dedicated more of their budgets to food bought in stores and at restaurants in 2023 than they did in the previous year.

Here's what you need to know about the changes, and how they affect overall inflation.

Why do we break down inflation by basket?

Statistics Canada regularly reviews basket weights to make sure they're reflective of how much Canadians are spending on goods and services.

"It's something that we do every year. And the fact that we do it every year is actually beneficial to Canadians because that means that the CPI is based on the most current spending patterns of Canadians," said Rebecca Lehto, a Statistics Canada consumer price analyst.

Because Canadians spent more on food and dining out in 2023, the weight of the food basket increased (for the second year in a row) from 16.13 per cent of the total inflation number in 2022 to 16.72 per cent in 2023.

Food from grocery stores now accounts for 10.82 per cent of the overall CPI, while food from restaurants increased to 5.90 per cent of that figure, according to Statistics Canada.

The baskets for shelter and health and personal care also increased, while others — like those for transportation, or alcoholic beverages, tobacco products and recreational cannabis — declined in importance.

"This year, we saw the weight of food go up and that was essentially because more people are spending at restaurants again without COVID restrictions or capacity restraints. And it's also coming from the grocery side," because prices increased significantly, Lehto said.

What does that mean for inflation numbers?

Each basket has a varied impact on the overall CPI figure. More broadly, items like food or gas are sometimes excluded from inflation measures because their prices can be volatile.

"For example, a five per cent change in gas prices will impact the all-item [consumer price index] more than a five per cent change in milk prices," because Canadians direct more spending to gas than they do milk, said Lehto.

"Going forward, a larger increase in food will have a larger impact on the all-items CPI."

That starts with May numbers, which will be released on Tuesday morning.

How did the COVID-19 pandemic change price stability?

Adjusting the baskets was especially important during the pandemic when "spending patterns were shifting suddenly and profoundly," said Lehto. While Statistics Canada updates the baskets every year now, before the pandemic, it did so every two years.

The changing basket weights are also an important marker of history, because they show where Canadians have had to devote more money in a given year, explained William Huggins, a professor of finance and business economics at McMaster University.

"The weights change in response to the data that's already gone by. So when we're seeing that increase in food weight, that's in response to the fact that in 2023 we spent more than we did on food than in 2022," he said.

That became especially pertinent during the pandemic, when restaurants shut down and people stopped eating out. People stopped travelling, too, which in turn impacted the transportation basket.

"You see all these wild changes in the CPI basket really as a diagnostic of how people were changing their lifestyles," said Huggins.

Will I feel these changes at the grocery store?

The updated baskets "will still be a measure of approximately how a bundle of food prices has changed in the last month and it's nothing more than that. It is a measure of average affordability," said Michael von Massow, a food economist at the University of Guelph.

"The impact on the ground or in the grocery aisle, if you will, isn't significantly different…. It gives us a sense of what to expect.

"If you really want to see what's relevant to you as an individual, you could go look at the table and say, 'Oh, I eat more chicken than beef, and fresh chicken [is] up less than beef in the last year.'"

Take the inflation numbers released last month. Food inflation grew at a slower rate of 1.4 per cent annually in April compared to the same time last year, when the growth rate was 9.1 per cent.

Those numbers won't feel accurate to everyone — because we all have different grocery lists, said von Massow.

"[The basket] reflects changes in demand and it also reflects changes in relative prices."

Credit belongs to : www.cbc.ca

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