Finance Committee on Jan. 17th, 2022

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Can you give us a sneak peek at that data this afternoon?

I can see by your reaction that the answer is no. I understand given the impact that it could have on the markets, but I had to try.

If I am not mistaken, at the beginning of the pandemic, there was a drop in the price of some goods, such as gasoline. Since then, those prices have returned to or even exceeded what they were before. Inflation is now higher than what we expected.

According to the most recent data, what is the approximate percentage of annual inflation and what portion of that is attributable to price recovery following the drop observed at the beginning of the pandemic?

[Anil Arora]

Unfortunately, we cannot share that data with you before it is officially published. You will have to wait until Wednesday morning like everyone else.

With regard to gasoline in particular, gas prices, which are set elsewhere as you know, dropped because of the restrictions that were being imposed throughout the world. Once the restrictions were lifted, gas prices went up. In April of last year, the Organization of the Petroleum Exporting Countries, or OPEC, also reduced its production, which caused gas prices to rise by 25% over the summer.

We estimate that gas has a weight of approximately 3.6% in the CPI basket and, over a period of one year, from November 2020 to November 2021, the price of gas increased by 43.6%. On a monthly basis, from October 2021 to November 2021, the price of gas dipped slightly by 0.1%. It still depends on the restrictions, the global situation and production.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Okay. Thank you.

I used gasoline as an example because it is a striking one, but I will ask you that question again as it pertains to the economy as a whole.

We can use the example of the consumer price index or CPI. According to your most recent data, what percentage of inflation does that represent?

Also, what percentage is attributable to price recovery rather than to an inflation crisis per se?

[Anil Arora]

I will ask my colleagues, Ms. Ertl and Mr. Peterson, if they can provide more detailed answers to those questions.

[Heidi Ertl, Director, Consumer Prices Division, Statistics Canada]

Thank you very much.

I will answer in English because I will be using some rather technical vocabulary.

What we know, as the chief statistician described, is that many components experienced base effect. When you compare 2021 to the first year of the pandemic, 2020, we look at the impact of base effect, but it is really specific to various components and those components vary from month to month.

I should point out that gasoline has been the biggest driver of inflation in recent months. That was also one of the key components where we saw very large base effect as we came round to the first-year anniversary of the onset of the pandemic. I would also like to point out that as we are now beyond 12 months of the pandemic, we don't see base effect as a key contributing factor. The increases over the last several months have really been focused on pure price pressures.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you.

Do I have any time left, Mr. Chair?

[The Chair, Liberal, Peter Fonseca]

You have about 15 seconds.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

I will stop there then. I still have a lot more questions to ask during the next round.

Thank you again.

[The Chair, Liberal, Peter Fonseca]

Thank you, Monsieur Ste-Marie.

We are now moving to the NDP and Mr. Blaikie for six minutes.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much to our witnesses for being here with us today.

I wanted to ask for a bit more historical context on the question of housing prices in Canada. We've seen extraordinary pressure just in the last couple of years. Anecdotally, in the Winnipeg market—just as the example that I know better—it seems that housing prices have been doubling about every five years or so for the last 20 years.

Have you compared the rate of housing price increases over the last couple of years to the trend line for the last 15 or 20 years? Could you give us a sense of the extent to which these are exceptional price increases in comparison to that trend? To what extent are those price increases following a trend that has been making housing more and more unaffordable for Canadians for some time now?

[Anil Arora]

It's fair to say that in the last two years we've seen a sharp acceleration in housing prices. As you mentioned, in some jurisdictions it's been a little bit more. Even within cities, we've seen a differentiation as people try to get out and get a bit more space in the suburbs and in single family homes, etc. However, our data are showing that these are very sharp increases overall.

Yes, we did see an increase over time, but the last period has been exceptional in terms of increasing. There are a number of factors, as we've discussed before.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Yes. Maybe you could list those factors and then I'll have a follow-up question for you.

[Anil Arora]

Sure. There has been increased saving. As I mentioned, people are working from home in some cases and they want to have a bit more space. [Technical difficulty—Editor] really resulted in that increased price that you see. Even in Winnipeg, you see those prices have gone up quite sharply in the last couple of years.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Beyond people wanting to upgrade their primary residence to have more space or a larger yard, or things that I think people have come to value greatly during the pandemic, one of the factors we hear a lot about is investment as being a real driver in the housing market and that there are at least two classes of investors.

One is more a commercial investor and with [Technical difficulty—Editor] corporate we've heard talked about sometimes. Then there is your typical Canadian homeowner who may have owned their home for a while now, has a bit of equity in their home and has decided to use that equity to purchase a second property that they then rent out, whether it's a vacation property and they're doing that on Airbnb, or they're providing [Technical difficulty—Editor] can't afford to buy their own home or who would rather rent.

When we talk about the increased pressures in the housing market and this investor presence, does your data allow one to kind of weight these factors at all in terms of how much of the pressure is from Canadian households looking to upgrade their primary residence versus different classes of investors that are entering the housing market for a source of passive income?

[Anil Arora]

I think there are multiple questions there. I'll ask Greg to maybe talk a bit about some of the data on [Technical difficulty--Editor], but specifically to the last part of your question, for sure we saw lumber prices increase, as you've seen, just about 12% year over year. We saw, in the summer, renovation and garden shops and the lumber stores see significant [Technical difficulty—Editor] products. Yes, we do see a big difference in the overall wealth of somebody who's gotten into the housing market and has built that equity over time, maybe even saving for their retirement versus somebody who has rented over the course of their life. Yes, that certainly does provide incentives to invest in secondary properties and so on.

Maybe I'll ask my colleagues to see if they have a little more detail on that breakdown of how many people are in that investment space.

[Greg Peterson, Assistant Chief Statistician, Economic Statistics, Statistics Canada]

Thank you.

I don't have that data immediately available, but we can pull an extract from our housing statistics program for the clerk.

For the past few years, we have been taking a look at home ownership, that is, who owns homes. We started this exercise for the purpose of trying to identify and confirm ownership of Canadian properties. A lot of that work is still in progress, so again I'd be happy to provide the clerk with whatever information we can on the class of owner, if you will.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Thank you very much. That would be helpful.

[The Chair, Liberal, Peter Fonseca]

You have 15 seconds, Daniel.

[Daniel Blaikie, NDP, Elmwood—Transcona, MB]

Okay. Following Mr. Ste-Marie's lead, I'll cede the 15 seconds.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Now we're moving into our second round, members and witnesses. This will be a five-minute round.

We're starting with the Conservatives, and I have Mr. McLean up for five minutes.

[Greg McLean, Conservative, Calgary Centre, AB]

Thank you, Mr. Chair.

Welcome, everybody.

Mr. Arora, thanks very much for appearing here today. It's a pleasure to meet you this way.

When Justin Trudeau took power six years ago, the typical home price was $434,500 in Canada. Now that price of that typical family home in Canada is $811,700. That's 85% inflation in six years. Last year, home inflation hit 25%, which an economist from the Canadian Real Estate Association called the “biggest gain of all time”.

That followed $400 billion of newly created cash the government pumped into financial markets, much of it lent out for risky variable mortgages and interest rates well below both expected inflation and actual inflation, as you're seeing now. These negative rates literally paid people to borrow and to bid up prices, but banks look at the cost of home ownership by looking at total home ownership costs as a percentage of income, which are usually between 25% and 40%. With taxes on housing rising and inflation on the required repairs rising, the percentage of median family income dedicated to housing is obviously rising. At the end of 2021, the National Bank of Canada calculated that percentage as being 60%. Remember, banks usually look at the median being around 25% to 40%, where they can lend.

Is that 60% of median family income that is now required for housing considered in StatsCan's inflation calculations?

[Anil Arora]

Thank you for that question.

The way we come at [Technical difficulty—Editor] is we do an annual survey of the typical consumption of the Canadian household. That is then used to weight components of the CPI. We do this now on an annual basis. The last one showed without a question that shelter costs make up about 30%, if you like, of the weight of that basket, and as I mentioned earlier, that has various subcomponents—household operations, furnishings and equipment—which are just about under 15%. We talked earlier about the replacement component, and so on.

Then, of course, we do have other measures that we look at. When we compare it to the median income of a particular household, at what point do those basic costs then put them in core housing need? When those costs increase above that rate, then we deem that household and every member within that household to be in core housing need. The last figure we had was that about 10% of Canadian households were in that position where it was felt they were spending a disproportionately high portion of their income on shelter costs, compared to the income—

[Greg McLean, Conservative, Calgary Centre, AB]

My takeaway from the response so far is that the National Bank says 60% of median income is required for shelter in Canada right now, while you have it calculated in your inflation calculation at 30%. Is that the difference between what the banks are seeing as the cost of shelter and what you are calculating as the cost of shelter?

[Anil Arora]

Again, I can speak to how we do it. Ours is a very stable, rigorous approach over time. We survey tens of thousands of households and find out what they are spending their income on in a typical month, down to a very small differential between what they take in and what they spend, and then that forms the basis, if you like, of the weight within the CPI. Then we measure the change in that expenditure over time to come at the index—

[Greg McLean, Conservative, Calgary Centre, AB]

So in arriving at the current inflation rate, you're still minimizing the amount of household income that would be allocated toward shelter, because it's part of a long-term trend and you're not going to pay attention to the blips that are happening that may be short term, much like transitory inflation might be short term. Is that correct?