Thank you.
Most analysts discuss inflation with an air of precision and certainty. I would like to speak about the uncertainty and the unknown surrounding our understanding and measurement of inflation. I'm passing on note that I worked at Statistics Canada for 36 years, ending as its chief economic analyst.
For several reasons, we don't know what the current rate of inflation is, although it clearly is faster than before the pandemic. This is because, first, the coverage of the CPI is incomplete. For example, used cars are excluded from Canada's CPI but not the U.S. one, and shortages have raised used car prices substantially during the pandemic.
Second, more broadly, the CPI does not attempt to measure the impact of shortages, which are clearly a cost to consumers in terms of choice, convenience and price. The CPI was designed for an economy characterized by abundance and not shortages. For example, car companies will produce more expensive models due to chip shortage, but the CPI will miss this shift in production.
Third, statistical agencies measure the CPI differently. I just mentioned used cars. Housing, the largest part of the CPI, varies between countries and even within statistical agencies over time. The U.S. and Canada treat housing differently today, and both nations have changed their measure of housing prices since the 1980s. There is no wrong or right in this, but it reflects the—