Take it Out, and Cut Already!

Canadian banks are releasing reports, one-after-the-other, urging the Bank of Canada to stop using components of shelter inflation in its core CPI calculations.

I mean, why should shelter costs (needed to live) be part of the a critical cost of living index?

They argue that mortgage interest is not included in US CPI, and should therefore not be included here in Canada — but they leave out one important point: Americans can write off their mortgage interest. (or get a huge flat-rate deduction instead)

National Bank

In their March 19th report titled: “All provinces have CPI ex-shelter at or below 2%” the National Bank writes:

“We note that CPI inflation outside shelter was only 1.3% in February, with 9 out of 10 provinces at 2% or below.”

CPI ex-shelter is exactly what you think it is — they took out all shelter costs to show: “look we beat inflation!”

That’s perfect for human beings who dont need shelter.

They then proceed to provide a link to another one of their reports showing how shelter is “contaminating” inflation measures:

Source: National Bank of Canada

Its important to understand that in the National Bank Report, they are referring to rent, heating, insurance and mortgage cost etc. All shelter costs! Not just mortgage interest costs, like TD Bank (coming next) refers to.

Rent contaminates the consumer price index? That’s a head scratcher.

They go on to add: “There is a risk that the Bank of Canada (BOC) is already doing undue damage to the economy by maintaining an overly restrictive monetary policy”

TD Bank

In their February 20, 2024 report “The BoC’s Shelter Inflation Problem” TD Bank economists went as far as to write:

“If we calculate Canadian inflation using the same weights as the Fed’s preferred metric, Canadian inflation would be at just 2.1% y/y (Chart 1)!”

They then make their case by providing this chart:

TD Bank

TD goes on to add: “this isn’t going away no matter how quickly the [BoC] decides to cut rates. While we have been arguing for the Bank to begin looking through the shortcomings created by shelter inflation and instead focus on the health of the broad economy”

Its Not Just the Banks

Prominent public figures are also echoing this call to amend the CPI:

If the Facts Dont Suit Your Narrative – Change the Facts

While its tempting to simply exclude inconvenient shelter costs to get the result you desire — doing so is dangerous. Shelter costs are real costs incurred by Canadians to survive bone-chillingly cold winters, and they should be counted as such.

Shelter is not simply a nice-to-have, thankfully the Bank of Canada understands this and has not caved to the pressure.

So far, anyways.