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StatsCan urged to change inflation measurement to capture true cost of housing


 

OTTAWA – The C.D. Howe Institute says inflation may be higher than currently assumed because of Canada’s climbing house prices.

The think-tank says in a new paper that Statistics Canada needs to change the way it measures housing costs that doesn’t take into account today’s unusually low interest rates.

Philippe Bergevin, a senior policy analyst with the institute, says housing should be treated as any other commodity and measured based on actual sale prices of homes.

That would more accurately reflect the strong run-up of real estate prices since the recession.

Bergevin says a truer picture of inflation might make it more difficult for Bank of Canada governor Mark Carney to stick to with low interest rates for such an extended period.

Carney has kept the bank’s trendsetting policy rate unchanged at one per cent for two years, and many are expecting it will remain at the current level until well into 2013.

Statistics Canada has been urged to change the way it measures changes in cost of living for several years, but until now most analysts believed the agency was over-estimating price increases by about half a percentage points a year.


 
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StatsCan urged to change inflation measurement to capture true cost of housing

  1. It’s easy for our daily life to become so contrived that reality is no longer necessary for society to function on it’s own. Society is in a state of torpor and the “spring metaphor” makes more sense than ever.

  2. The last paragraph about over-estimation of price increases by about half a percentage point a year obviously relates to different biases believed to exist in the CPI, like the upper level substitution bias. This can be reduced by more frequent or more timely basket updates among other things. However, there is no similar upward bias in the inflation indicator used by the Bank of Canada because of the treatment of homeownership in the CPI. As the monograph states, the CPI will tend to show too much inflation (in terms of what a central bank should be interested in) when housing prices are surging, and too little when they are falling. However, correcting the treatment of homeownership would do much more to improve the Bank of Canada`s target inflation indicator than anything that could be done to correct upper level substitution bias that respected the current no-revision policy of the CPI.

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