Deciphering Inflation: Experts explain why the U.S. and Canada calculate rates in different ways

The inflation rate seems to be dropping faster here in the United States than in Canada, but according to the chief economist with one of Canada’s largest banks, looks can be deceiving.

The inflation rate seems to be dropping faster here in the United States than in Canada, but according to the chief economist with one of Canada’s largest banks, looks can be deceiving.

The Bank of Canada recently held its key interest rate at five percent for the sixth consecutive time since last July. Industry response shows Canada is struggling to keep up with competition because of it. However, Beata Caranci, an official with the Toronto Dominion Bank (TD Bank) says it is hard to compare Canada and the U.S. because inflation rates are measured differently.

“The main reason that we’re seeing, I think, the divergence between Canadian and U.S. inflation figures is the methodology factor. When we look at what the Federal Reserve targets for their inflation, shelter is only 15%. Whereas, in Canada, it’s 30%. That’s double the weight. It’s going to make it a lot harder for the Bank of Canada to hit the number they want to hit.”
TD Bank Chief Economist Beata Caranci

The Bank of Canada expects inflation to move closer to its two percent target this year, along with solid GDP growth due to increases in both population and household spending. Mike Von Massow, an ag economics professor at the University of Guelph, says, thankfully the overall price for groceries has dropped to more affordable levels, especially compared to housing and transportation.

“We know that people are still feeling the pinch. It wasn’t unique to food. We know rent [and] transportation. We know all of those things went up. So, I think, even though food prices are a little over 5% higher than they were a year ago, we’ve seen actual price decreases in food and is below the rate of general inflation.”
University of Guelph Ag Economics Professor Mike Von Massow

The Bank of Canada expects the key lending rate to be dropped slightly in July.

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