CPI and Deflation in Canada

CPI and Deflation in Canada - Inflation - Deflation_orig

Written ByMathieu Powell

I'm a sceptic & humanist who's optimistic about our future. Our stories help us find common ground.

What is this CPI

Economists talk about the Consumer Price Index (CPI) as a tool to measure inflation or deflation, so a brief definition is in order.

CPI simply takes a variety of consumer goods and services such as transportation, food, and medical care, and weights each good or service with a predetermined multiplier to reflect how comparatively important it is in the ‘basket of goods.

Next, the CPI is calculated by taking price changes for each item and averaging them. The CPI is an aggregate price level in an economy and is a measure of the purchasing power of a country’s unit of currency, which impacts the cost of living. When the CPI goes up, it signifies inflation.

On the Fall

However, consumer prices fell in several segments of the Canadian economy in April. They included transportation, clothing and footwear, recreation, and education. Gasoline and clothing both experienced the largest decline in the history for those components on record. Statistics Canada (Stat Can) data shows the consumer price index (CPI) fell in April 2020.

Deflation is when consumer prices fall. That is a good thing. After all, who does not want to pay less for things? Declines at certain times, especially if due to decreasing manufacturing costs, can be terrific. Consumers have more money they can spend or invest.

While the Bank of Canada does not want to see sustained deflation, they do not deem small price declines over short periods of time to be a problem.