Finance Committee on March 31st, 2022

[The Chair, Liberal, Peter Fonseca]

I call this meeting to order.

Welcome to meeting number 35 of the House of Commons Standing Committee on Finance.

Pursuant to Standing Order 108(2) and the motion adopted in committee on January 12, 2022, the committee is meeting on inflation in the current Canadian economy.

Today's meeting is taking place in a hybrid format, pursuant to the House order of November 25, 2021. Members are attending in person in the room and remotely using the Zoom application. As per the directive from the Board of Internal Economy on March 10, 2022, all those attending the meeting in person must wear a mask, except for members who are at their place during proceedings.

I'd like to make a few comments for the benefit of the witnesses and the members. Please wait until I recognize you by name before speaking. For those participating by video conference, click the microphone icon to activate your mike. Please mute yourself when you're not speaking. Interpretation is available. For those on Zoom, you have the choice, at the bottom of your screen, of either floor, English or French audio. For those in the room, you can use the earpiece and select the desired channel.

I remind everyone that all comments should be addressed through the chair. For members in the room, if you wish to speak, please raise your hand. For members on Zoom, please use the “raise hand” function.

The clerk and I will manage the speaking order as well as we can, and we appreciate your patience and understanding in this regard. With regard to a speaking list, the committee clerk and I will do the best we can to maintain a consolidated order of speaking for all members, whether they are participating virtually or in person.

The committee has agreed that during these hearings, the chair will enforce the rule that responses by a witness to a question take no longer than the time taken to ask the question.

That being said, I request that members and witnesses treat each other with mutual respect and decorum. If a member thinks a witness has gone beyond the time, it is the member's prerogative to interrupt or ask the next question and to be mindful of other members' time allocation during the meeting.

I also request that members not go much over their allotted question time. Though we will not interrupt during a member's allotted time, I'd like to keep you informed that our clerk has two clocks to time our members and witnesses.

I'd now like to welcome today's witnesses. With us here from Statistics Canada are Haig McCarrell, director, investment, science and technology division; Heidi Ertl, director, consumer prices division; Taylor Mitchell, senior economist, consumer price index; and, rounding off the team, Greg Peterson, assistant chief statistician, economic statistics.

Statistics Canada will now have an opportunity for opening remarks. I understand that Mr. Peterson will be delivering those remarks.

The floor is yours, Mr. Peterson.

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

Thank you, Mr. Chair and finance committee members. It's a pleasure to be here today with our team.

Since we last spoke to this committee in January, domestic and international challenges have continued to impact supply chains and associated costs.

We're all in a state of high alert due to the many uncertainties and risks around us. In this climate, Statistics Canada takes its job of anchoring Canadians to the facts more seriously than ever.

Our consumer price index continues to be a robust mechanism to gauge the impact of global and domestic events on consumer inflation and Canadians’ changing consumption patterns.

In our last appearance before the committee, we told you that the consumer price index, the CPI, increased 4.7% year‑over‑year as of November. That figure has climbed to 5.1% in January and 5.7% in February. We haven't seen gains this large in 30 years. The price increases are broad‑based, with the biggest drivers being gasoline, food, supply chain issues, and a heated housing market.

Allow me to provide some specific updates.

Gas prices jumped almost 7% between January and February in the wake of increased demand and Russia's invasion of Ukraine. Canadian motorists paid a third more at the pump compared to last February. If we took gas out of the equation, this February's CPI would be a full percentage point lower.

Grocery bills are rising fast, too. We saw a 6.5% increase in January and another 7.4% in February. That's the largest year‑over‑year leap since 2009. Rising input prices and transportation costs are some of the biggest drivers. But 2021 was a particularly bad year for food production, which is where we often see climate‑related impacts.

I know this committee has concerns about housing affordability. Shelter costs rose 6.6% in February—the largest increase in almost 40 years.

Some have asked why the CPI isn't even higher given these important increases. First, the index represents a Canada-wide average, accounting for all 10 provinces as well as the northern capitals. The CPI may not always match the exact experience of individuals, households or even regions in Canada. This is because of geographic variations, along with different consumer choices.

We explained last time that the CPI is a consumption-based index that measures monthly costs of home ownership, including mortgage interest costs. It does not include the part of your mortgage payment that goes to principal, because that's considered an investment and an asset that would most likely appreciate over time.

However, the CPI is influenced by the most recent housing prices and interest rates, and we'll soon introduce enhancements, which I'll speak to shortly. The CPI also factors in price decreases in things such as mortgage interest, cellular services, car insurance and child care costs, following the introduction of new child care grants in certain provinces. It factors in quality improvements in items that may be outpacing their prices.

Statistics Canada is committed to keeping the CPI current and relevant. For our next release in April, a new data source for resale house prices, in addition to the new housing price index, will be used in the calculation of mortgage interest costs. This change will improve the timeliness and coverage of resale housing prices in the CPI.

We're also sharing best practices and aligning with international bodies on how to approach the measurement of housing in CPIs, and looking at how to leverage our other housing indicators. Expenditures on used vehicles are already captured in the CPI, with new vehicle prices serving as a proxy. We'll soon publish our plan to introduce used vehicle prices into the CPI, and here we'll be inviting user feedback.

On June 15, we'll conduct our annual update of basket weights used to calculate the CPI.

Looking ahead, the CPI is likely to remain elevated. Fears surrounding the global oil supply sent oil prices soaring in early March, when Russia's invasion of Ukraine escalated. We're expecting higher gas prices to have a significant effect on March's CPI unless the situation changes quickly.

The crisis in eastern Europe could also affect prices for appliances and electronics as key raw materials get more expensive and supply chain pressures increase.

Finally, since Ukraine is a major exporter of grain and vegetable oil, lower supplies of these products in international markets and shipping disruptions will likely raise the prices for many everyday foods.

With that, Mr. Chair, we'd be happy to answer any questions.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Peterson, and thank you to the Statistics Canada team for joining us for the second time. You are a very important organization, and we thank you for the very important work that you do.

I know the members have many questions. We're now going to go into our first round of questions. In this round, each party will have up to six minutes to ask questions.

We're starting with the Conservatives, and we have Mr. Albas up for six minutes.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you, Mr. Chair.

I'd like to thank the team from Stats Can for being here today. Please pass on my best to the chief statistician.

One of the things I was hoping we could discuss today was inflation. I don't think there's any issue that affects Canadians' financial health today more than inflation. Your presentation, sir, illustrated many of the challenges that Canadians are facing.

As the basket of goods used to measure CPI has changed since 1991, and it says here in the parliamentary briefing note that we've seen the highest levels since August 1991, it would be helpful to my constituents to have an apples-to-apples comparison when discussing how we track inflation.

Would you be able, sir, through Statistics Canada—I don't expect it on the spot—to please provide the committee with an analysis that measures what the rate of inflation would be in the CPI basket from August 1991 versus the one that you prepare for Canadians on a regular basis?

[Greg Peterson]

I'm sorry, Mr. Chair. I'm not sure I completely understand the question.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

The basket of goods has changed. Could you go historically back to where the basket of goods would be for 1991, the last time it was this much, and measure how much inflation would be today?

You said in your statement, “We haven't seen gains this large in 30 years. The price increases are broad-based, with the biggest drivers being gasoline, food, supply chain issues, and a heated housing market.” Would you be able to supply a comparable? If we were to look at the basket of goods that your predecessors would have utilized in 1991, could you measure what inflation would be on an apple-to-apple basis?

[Greg Peterson]

I'll turn to Mr. Ertl for technical details on how we would do that, but certainly we could take a look at any distribution of goods and how the price has changed over time.

We regularly update the CPI basket, as most countries do, on a regular basis. For the past couple of years, we've been updating it annually. We do this in order to respond to the changing consumption patterns of Canadians.

However, if what you're looking for is a kind of—

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Well, there are lots of people who experienced inflation back in the 1990s. I think many people would like to know what the rate of inflation would be using that old measurement.

Speaking about international comparables, etc., it's my understanding that both Japan and the United States use a rental-equivalent approach. You mentioned in your presentation, sir, that there is going to be a new approach on housing. Are you going to be looking to countries like the United States and Japan for best practices when it comes to reporting housing? What are you proposing, and what are you basing best practice on?

[Greg Peterson]

We are taking a look at the data we use in order to calculate the mortgage interest cost by including both new houses and resale houses.

The whole issue of how we measure housing is a discussion that a number of national statistical offices are having. We aren't proposing to move to a rental-equivalence model similar to what the United States, the U.K. and other countries do. Essentially, we're looking at doing what we're currently doing, but we are working with other countries as we're moving ahead, to see whether or not there are better ways to do that.

Many other countries are actively looking at how they're dealing with housing prices, and we would be remiss if we weren't part of that conversation.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

I'm very happy to hear that.

In British Columbia, we are seeing in many cases that rents are skyrocketing and there is a practice of rent evictions, etc. It's not just drastic housing price inflation that we've seen in Canada through much of the government's policies, but we're also seeing rents rise as well. How are you going to better capture those increases in rent utilizing this new method?

[Greg Peterson]

We already capture increases in rent. When we take a look at shelter costs, we break out both owned accommodation and rental accommodation. You are correct; we are seeing high increases in rental accommodation costs. The latest number is going to a 4.2% year-over-year increase. Rented accommodation accounts for about 6.6% of our current basket, so, yes, we are keeping track of changes in rental housing costs, and we'll continue to do so.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Considering the divergence between housing prices and the consumer price index, does the current user-cost approach used by Statistics Canada still reflect the actual cost of housing ownership?

[Greg Peterson]

I think it does. It's important to make the distinction between indexes of housing prices and what we do in the consumer price index. If I take a look at the good work that CREA does in its housing price index and the great work that Teranet does in developing its housing price index, they're measuring the price of purchasing a house. What we're attempting to do in the consumer price index is measure the cost of owning that house. Conceptually, we're looking at something that's a bit different.

We are currently reflecting the increase in housing prices, including mortgage interest costs and home replacement costs, and we'll continue to do so.

[Dan Albas, Conservative, Central Okanagan—Similkameen—Nicola, BC]

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Albas.

We are moving to the Liberals and MP Chatel, for six minutes.

[Sophie Chatel, Liberal, Pontiac, QC]

Many thanks the entire Statistics Canada team.

Your work is very important in making sure that we have good data that will be used to develop good policies. So thank you for your excellent work.

I have two questions, one in English and one in French.

Your February CPI release notes that the rising price of fuel is really affected by geopolitical conflicts in eastern Europe, mainly Ukraine, and also the Middle East. Can you elaborate on that?

[Greg Peterson]

Maybe I can turn to our lead analyst, Taylor Mitchell, who can talk about the supply chain effects on fuel.

[Taylor Mitchell, Senior Economist, Consumer Price Index, Statistics Canada]

Gasoline prices in Canada are certainly primarily impacted by international dynamics for oil. Currently, we are contending with both supply and demand factors. In terms of supply, we've seen OPEC Plus keep oil production at levels lower than we saw prepandemic.

We saw those initial cuts, implemented in the earliest days of the pandemic, maintained, and we're also seeing demand as economies ramp back up as COVID restrictions have been eased. That's been further exacerbated by geopolitical events in eastern Europe. As we've seen those conflicts ramp up, we've seen ongoing concerns about oil availability, which has had an impact on prices.

[Sophie Chatel, Liberal, Pontiac, QC]

Could you elaborate on how this also impacts transportation?

[Taylor Mitchell]

Gasoline is a component under our transportation component.

Can you perhaps clarify the question?

[Sophie Chatel, Liberal, Pontiac, QC]

We see a rise in inflation in terms of different buckets of goods, but mainly food. We know that climate change has been a factor. The price of wheat has also increased, caused by the war in Ukraine.

What's the factor in food prices, for example, that is caused by fuel and transportation?

[Taylor Mitchell]

There are certainly a number of factors that influence food prices as seen in the CPI. As you mentioned, they are certainly influenced by weather patterns and the ability to produce food.

One factor that we're also seeing impact food prices right now is the price of transportation, which is very much linked to gasoline and diesel prices. Because there are a number of factors that influence food prices, it's not possible to easily decompose the exact impact of transportation, but it's certainly a factor.

[Sophie Chatel, Liberal, Pontiac, QC]

Thank you very much.

I'll ask my second question in French.

The latest consumer price index also shows that phone prices continue to fall year over year. I'm curious to know why phone prices continue to fall.

[Greg Peterson]

Thank you for your question.

When we measure something using the CPI, our goal is to measure the same products over time.

I'll give you the example of cereal boxes.

If you change the weight of a box of cereals, we're going to adjust the price, given the change in weight.

The same is true of telecommunications services. During the pandemic, many telecom service providers increased the data in their telecom plans. As a result, consumers received more services for the same price. We adjust the quality [Technical difficulty—Editor]. There is a reported decrease in price for these services.

[Sophie Chatel, Liberal, Pontiac, QC]

Okay.

I didn't necessarily understand that the fees… My family and I haven't seen a big drop. You compared the expansion of services. It is true that, in the end, we have more services for the same price. This is important in how you calculate and compare the costs of telephone services.