Is Government Inflation Reporting Accurate?

Who ya gonna believe: official CPI figures or your lyin' eyes?

Great news! We’ve brought inflation back under control and stuff is now only costing you 2.4 percent more than it did last year!

That’s more or less the message we’ve been hearing from governments over the past couple of years. And in fact, the official Statistics Canada consumer price index (CPI) numbers do show us that the “all-items” index in 2024 was only 2.4 percent higher than in 2023. Fantastic.

So why doesn’t it feel fantastic?

Well statistics are funny that way. When you’ve got lots of numbers, there are all kinds of ways to dress ‘em up before presenting them as an index (or chart). And there really is no one combination of adjustments and corrections that’s definitively “right”. So I’m sure Statistics Canada isn’t trying to misrepresent things.

But I’m also curious to test whether the CPI is truly representative of Canadians’ real financial experiences. My first attempt to create my own alternative “consumer price index”, involved Statistics Canada’s “Detailed household final consumption expenditure”. That table contains actual dollar figures for nation-wide spending on a wide range of consumer items. To represent the costs Canadian’s face when shopping for basics, I selected these nine categories:

• Food and non-alcoholic beverages

• Clothing and footwear

• Housing, water, electricity, gas and other fuels

• Major household appliances

• Pharmaceutical products and other medical products (except cannabis)

• Transport

• Communications

• University education

• Property insurance

I then took the fourth quarter (Q4) numbers for each of those categories for all the years between 2013 and 2024 and divided them by the total population of the country for each year. That gave me an accurate picture of per capita spending on core cost-of-living items.

Overall, living and breathing through Q4 2013 would have cost the average Canadian $4,356.38 (or $17,425.52 for a full year). Spending for those same categories in Q4 2024, however, cost us $6,266.48 - a 43.85 percent increase.

By contrast, the official CPI over those years rose only 31.03 percent. That’s quite the difference. Here’s how the year-over-year changes in CPI inflation vs actual spending inflation compare:

As you can see, with the exception of 2020 (when COVID left us with nothing to buy), the official inflation number was consistently and significantly lower than actual spending. And, in the case of 2021, it was more than double.

Since 2013, the items with the largest price growth were university education (57.46 percent), major household appliances (52.67 percent), and housing, water, electricity, gas, and other fuels (50.79).

Having said all that, you could justifiably argue that the true cost of living hasn’t really gone up that much, but that at least part of the increase in spending is due to a growing taste for luxury items and high volume consumption. I can’t put a precise number on that influence, but I suspect it’s not trivial.

Since data on spending doesn’t seem to be the best measure of inflation, perhaps I could build my own basket of costs and compare those numbers to the official CPI. To do that, I collected average monthly costs for gasoline, home rentals, a selection of 14 core grocery items, and taxes paid by the average Canadian homeowner.¹ I calculated the tax burden (federal, provincial, property, and consumption) using the average of the estimates of two AI models.

How did the inflation represented by my custom basket compare with the official CPI? Well between 2017 and 2024, the Statistics Canada’s CPI grew by 23.39 percent. Over that same time, the monthly cost of my basket grew from $4,514.74 to $5,665.18; a difference of 25.48 percent. That’s not nearly as dramatic a difference as we saw when we measured spending, but it’s not negligible either.

The very fact that the government makes all this data freely available to us is evidence that they’re not out to hide the truth. But it can’t hurt to keep an active and independent eye on them, too.

1. After all, taxes are certainly a major part of our cost of living, right? And even though you could argue that tax payments deliver benefits like “free” healthcare, well transportation expenses also deliver benefits (like the ability to get to work).