Habits of Canadian consumers changed so much during the COVID-19 pandemic that Statistics Canada’s inflation measure became less reliable, suggests an analysis released on Monday.
The federal agency previously reported that annual inflation fell 0.2 percentage points in April, then fell 0.4 percentage points in May, as containment measures dampened household spending.
But new analysis shows that consumers were spending more on items that are less important in the calculation of the Consumer Price Index (CPI), which tracks inflation. They also spent less on certain categories that weighed more heavily, such as gasoline.
As part of its “exploratory analysis of the effects of changing consumption patterns on consumer price indices”, Statistics Canada found that annual inflation would have been zero in April and would have been -0.1 percentage point in May.
The document states that if habits can “prevail for a while”, the changes must be “sustained for there to be an impact” on annual inflation.
The research document released Monday was produced in partnership with the Bank of Canada, which aims to keep inflation at 2%. The target is expressed in terms of the 12-month increase in the CPI. The central bank had warned that the economic storm triggered by the health crisis as well as low interest rates would have an effect on inflation, which is below its target.
Spending on gasoline fell as the price at the pump plunged and the frequency of car trips fell. Canadians have traveled less, while they have spent more on groceries.
Statistics Canada is expected to release inflation data for June next week.
The Bank of Canada reported last April that inflation would be practically zero in the second quarter. Due to the level of uncertainty caused by the pandemic, the central bank said the picture was less clear for the future.
The central bank will publish its updated outlook on Wednesday.