Canada’s official inflation rate is currently 2.2% yet many Canadians are feeling anxious about affordability. Usually, the inflation rate is similar when calculated by the Consumer Price index (CPI) and by using other major goods not covered by CPI. In this quarter’s case study, we would like to explain that we are in a period where there is a big difference between the items that make up CPI inflation and major household items not represented in CPI.
Historically it made sense to use a relatively simple basket of everyday consumer goods and measure how they changed in price each month. Over time this list of goods changes and technology changes. The television you buy today is not comparable to a television twenty years ago so you can get a sense that the very nature of price comparisons is challenging.
Today the largest component of Canadian CPI is rent at 30% and the next largest items are automobile gasoline at 17% and food also at 17%. Therefore, the bulk or almost two thirds of CPI is just these three categories. Rent and gasoline have come down over the past year due to their own sector supply and demand dynamics. It is also important to highlight that other items Canadians buy like cell phones and t-shirts are made in places like China and Honduras. The price of the cell phone and t-shirt are stable due to what is happening in other parts of the world, but it doesn’t reflect what is happening in the Canadian economy.
While 2% CPI is in line with the central bank’s target, many of the things we pay for are up significantly. The below graphic highlights price changes since 2000.
While 33% of Canadians rent, 66% are homeowners. These numbers are anecdotal to Toronto, but both property tax and property insurance have been increasing at 6-8% for two years in a row. While some food items are stable, many due to the disruption of tariffs are up significantly. Also, that cell phone we talked about is lasting longer, so buying the new iPhone is closer to $1,400 compared to a high end one of say $800 a decade ago.
The paragraphs above highlight that the headline 2.2% inflation number does not reflect the daily experience of the average family. Canadian wages are stagnant and given the higher cost of everyday domestic items like property tax, home insurance, and food, the average budget of most Canadians has tightened significantly.
You can see that when it comes to investing, today’s bond yields of 3.5% don’t fully compensate for rising household expenses. This is why it is important for us to keep our eye on long-term investments goals where our money is invested in quality businesses that maintain the purchasing power of our savings.
Bill Harris
January 2026
