Finance Committee on Jan. 17th, 2022

[The Chair, Liberal, Peter Fonseca]

Thank you.

We'll move on now to the Conservatives. We have Mr. Chambers for five minutes.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you very much, Mr. Chair.

Thank you very much to our witnesses, who have, on short notice, come to help our committee with this study. Thank you for the work you do to give government and policy-makers some timely information.

One of my colleagues was asking about some changes in restating or maybe going back and looking at previous CPI measures, but I'd like to just ask a question about some of the methodology changes we've seen. I note that we've changed the basket weighting and referenced the year 2020, which to me seems a little bit of an interesting choice given that it was quite a different year in terms of some consumption habits.

Aren't we doing two things here? Aren't we kind of understating inflation by shifting weights away from some of these items that have seen significant increases—you mentioned gasoline with 43%—but then also when prices for some of these items, which we've overweighted in terms of consumption because of this weird 2020 year, come down in future years, aren't we going to actually pull down the CPI to a greater degree?

I wonder if you could respond to that. Thank you.

[Anil Arora]

Thank you for that.

In fact, every year we take stock of how consumption is changing, and we make sure that it's reflective of the weights in the basket so that when we measure that price change, that pure price change, it's reflective of the most current consumption.

In addition to that, we also did an alternate CPI by working with the bank and some of the sources of data it has to see if there was any correspondence between real-time shifts even more frequent than yearly to see if there was any big change. In fact, the numbers are not all that different from the CPI. The official measure is the CPI that we put, but, as I said, we do experiment and we do some complementary work, and our data show that the CPI is a very robust indicator and the shifts are 0.1% or 0.2% from what we see.

As you said, some of these patterns will change in the future, but of course that annual basket update will pick those up and then we will adjust the weights to make sure that the CPI remains reflective.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you.

You mentioned looking at it annually. My understanding was that it was an “every two years” cycle. Is that not the case anymore?

[Anil Arora]

It used to be ad hoc. Then it went to three. Then it went to two. Now it's one and, as I said, even in parallel we're doing more frequent updates.

[Adam Chambers, Conservative, Simcoe North, ON]

It seems to me, though, at least from the consumption of a lot of economists writing about this or what we would read from south of the border, that a lot of the changes in the methodology of CPI seem to have this effect of dampening the real inflation or CPI rate. For example, you hear a lot about this in the U.S. If we measured CPI like we did in the eighties, we would be in double-digit percentage points.

Is that a similar experience here? Over time, we've actually seen CPI and the way it's been measured to be quite different from it once was. We seem to be understating it to some degree.

[Anil Arora]

Our research doesn't show that. In fact, we're getting better at reflecting the price change with consumption. As I said, previously we used to take a price at a certain point in a month, for example. Now we're getting the movie instead of the one time.... As I mentioned, the scanner data we're getting is real-time consumption, so I think we're getting better at reflecting true change.

[Adam Chambers, Conservative, Simcoe North, ON]

Okay. Thank you.

I have a question on regional differences. How do you measure the regionality of some of our...? If you look at, say, B.C. and Ontario representing 60% of the population, how do we factor that in? For housing costs, as an example, are we spreading it across the whole country when a lot of people are experiencing something significantly higher?

[Anil Arora]

Yes, and that's the reason we actually put out the CPI for different parts of this country. Again, that basket that I talked about earlier is benchmarked to that consumption weight as well. For example, we know that B.C. had a 3.6% year-over-year change as compared to 4.7% in [Technical difficulty—Editor]. Those numbers are available on our website.

[The Chair, Liberal, Peter Fonseca]

You have about 15 seconds, Mr. Chambers.

[Adam Chambers, Conservative, Simcoe North, ON]

Thank you, Mr. Chair. I'll cede my time.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Chambers.

We'll now move to the Liberals and Madame Chatel for five minutes.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you very much, Mr. Chair.

I would like to welcome the Statistics Canada officials and commend them for their hard work and the excellent service they continue to provide during the pandemic. I spent the last four years at the OECD, and I can say that our economists and those from the other OECD countries really appreciate the quality of service offered by Statistics Canada. You are an excellent source for them.

That being said, I have a few questions about the difficulties that you mentioned earlier regarding the effect of inflation on food prices. I am particularly concerned about the effects of climate change.

We have put forward a very ambitious plan. All levels of government and other countries will have to invest a great deal of energy if we want to make a difference on a global scale.

You saw the data, which is what we used at the OECD. Climate change and extreme weather events, such as droughts, floods, the tornadoes in the U.S., and forest fires have a major impact on our farm products. Our farmers are well aware of that.

Can you tell us what method you use to assess the impact of climate change on food prices?

[Anil Arora]

Thank you very much for your question and comments.

I am very proud of our colleagues from all over. Like many other public servants, they worked to meet the needs during this rather difficult period.

As you mentioned, Statistics Canada has an excellent reputation on the world stage, and I am proud to chair the OECD's Statistics Committee. We work closely with our colleagues from all over the world.

Of course, the climate change situation is always evolving, which will have an impact on all sectors of our economy. We already have statistics on the economic impacts. We are working with our government partners, and we launched the first environmental census initiative in the world, which will help us to better understand the value of the ecosystem and its impact on resource development and agriculture. It will also enable us to measure that impact going forward.

I will ask my colleague Mr. Peterson to give some more details on that.

Thank you.

[Greg Peterson]

Thank you.

As the chief statistician said, we are currently implementing an environmental census.

That will measure the extent of ecosystems, the condition of ecosystems and the value of the goods and services derived from those ecosystems.

It will help us to better understand the connection between the economy and the environment.

I will now come back to your question. We have a large number of price indexes, not only for consumer prices but for every step in the production chain.

We aren't drawing direct links between the environmental change and those price indexes, but if we take a look at raw material prices for grains, we do see the impacts of weather, of what's happened out west. There are links all along the supply chain. Earlier in the pandemic we were seeing the impacts of African swine fever in China, which drove up global prices for pork, which had an impact on our raw material price index.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Peterson.

Thank you, Madame Chatel.

Members and witnesses, we are moving into our third round. We have gone just a little past our first hour. This is a three-hour meeting. In our third round we'll start with the Conservatives and Mr. Stewart for five minutes.

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

Thank you, Mr. Chair.

When Justin Trudeau took power, a typical home cost $434,500. Now it's $811,700. That's over 85% inflation in six years. Last year alone home inflation hit 25%, which the Real Estate Association chief economist called the “biggest gain of all time”. That followed the $400 billion of newly created cash that the government pumped into financial markets, much of it lent out in risky variable mortgages at interest rates well below inflation. These negative rates literally paid people to borrow and bid up prices. Housing inflation is homegrown.

Bloomberg reports that Canada has the second most inflated housing bubble in the world. The average family must spend two-thirds of their gross income on monthly payments for the average home in Toronto or Vancouver, cities which Demographia calculates are respectively the world's fifth and second most unaffordable markets.

Banking rules, mortgage insurance, monetary policy, money laundering—these are all federal. So is housing inflation. Here now under this government, that's just inflation, so my question is this. For my home province, I'm fielding high volumes of calls about concerns with home prices. In the first 11 months of 2021, in Moncton, New Brunswick, the multiple listing service's home price index had gone up almost 60%. New Brunswick as a whole has outpaced the national average by over 1.5%. This is extremely concerning to me as I'm not seeing this reflected in your shelter inflation analysis.

Why isn't this represented in your shelter inflation analysis?

[Anil Arora]

Thank you for that question.

First of all, in the CPI, unlike going to buy groceries that are consumed almost instantaneously, a house is something that one obtains and then gets the value of over time. The second thing one needs to be aware of is that, as I said, there's no question that our housing prices index and resale prices index, on a constant basis in the year after year that we've been measuring, are showing some dramatic increases year over year. There's no.... Some calculate average prices and some calculate on a fixed basis, so I won't argue why you see some numbers a little higher and some numbers a little lower. Ours is based on a very transparent methodology. You can see it. It's available for everybody to see.

Remember, not everybody is constantly remortgaging. Many people have mortgages and many people have paid off their mortgages. About 63% of the households in this country are owned. The rest are rented. You see as well a significant number of those who own those houses have actually paid them off. Nobody's arguing that the price of entry into the housing market is [Technical difficulty—Editor].

When you look at the CPI, which is the basket that looks at how those shelter costs are changing from month to month and year to year, it comes from that concept of what is the cost that is incurred to maintain that house, from the interest to the utilities to the insurance and to a portion of the replacement cost as well. That is benchmarked to what tens of thousands of households spend on those costs from month to month. That's how our numbers are calculated.

Like I said, many of our complementary measures are also showing the price increases, but in the CPI, that's the concept. That's how it measures the shelter cost.

[Jake Stewart, Conservative, Miramichi—Grand Lake, NB]

Thank you for that.

I think it needs to reflect how much Canadians are actually paying for shelter. In Saint John, New Brunswick, there was an article highlighting a senior citizen whose rent went up by 75%. If rents are going up, we know that interest rates are going up.

I don't understand why “shelter” wouldn't show what Canadians are actually going to pay. It was in the paper last week. I have to ask the question again: What's the real benefit to not including this in the shelter analysis?

[The Chair, Liberal, Peter Fonseca]

If you could, do that in about 20 seconds, Mr. Arora.

[Anil Arora]

Rental costs are included, so that particular situation is there. As I said, this is a price change, and then we do have complementary measures that start to get at different parts of our country as well as different subsections of our population and how they fare. I'd encourage you to look at those complementary measures.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Now we're moving to the Liberals and Mr. MacDonald for five minutes.

Go ahead.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you, Chair.

First of all, thank you. As a former provincial politician, I'll say that policy was ever so important and Statistics Canada was extremely important. Kudos for all the work you've done, and kudos for all the work you've done in the past two years.

I want to go back a little ways. We know that, prior to COVID-19, the rates of inflation usually met the formal target of 1.5% to 2%. Can you talk a bit about when you actually started to see the changes in inflation and about the effects that COVID-19 had on our society?

[Anil Arora]

I think that immediately, as we all went into lockdown post-March, we saw, in fact, deflation first. We saw those numbers go below zero. Then, as we've been discussing, as the economies opened and the restrictions have lifted, we've seen the inflation come back.

As was mentioned earlier, the CPI is a year-over-year measure, so you also started to see those base effects starting to come in as you watched that number over the course of the last two years, but as Heidi mentioned, I think we're starting to see those base effects starting to diminish. Now you're starting to see more and more of the true price change over time.

Yes, you saw an immediate drop, because everybody stopped doing anything for a period of time, and then you slowly started to see gradual shifts. Then you saw this period of increased inflation above that 2%, for all the factors that we've outlined earlier in the conversation today.

[Heath MacDonald, Liberal, Malpeque, PE]

Thank you.

Basically, if the government hadn't made investments, that deflationary...that downward spin you were talking about would have lasted longer, would have kept going longer, which would have had major effects on our GDP and our economy. Is that correct?