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Forget About Government Measured Inflation

The Bank of Canada decided to "pause" again on October 17th and the Fed is expected to do the same Wednesday the 25th, implying that inflation is under control. Well, if you live on a budget, we suggest that you forget about government measured inflation.

In Montreal, various suppliers have increased their cable TV rates from 4% to 9% this year. Telephone bills were increased by a few dollars, or 6%, for network improvements or so it is said on our bills.

Grocery stores are now selling 300 gram cheese bars at the same price that they used to sell 400 gram cheese bars. Prices did not raise, quantity just fell by 25%. Others gave them the trick. Doritos 100 gram bags are now 80 gram bags. They used to cost 99 cents, now they are priced at 1.29 CAN$. Funny how chocolate bars like Mars keep losing a gram per year but with their prices going up 10 cents per year. And how about Cadbury and Nestle products that have decreased in size by over 30% with no price adjustments?

Bread prices have gone up around 10% in the last year. One brand we used to buy for 1.89 CAN$ is now priced at 2.29 CAN$, a 21% increase.

Subway and bus tickets costs have increased over 15% in the last three years and are expected to rise again by 4% in January 2007. Gas at the pump is up over 50% in the last year, with every station now equipped for permanent triple digits prices (over 1.00 CAN$) per litre. Taxis have increased their basic rate by over 10% in May 2006. It has never been more expensive to drive a car around with parking meter rates up over 10%.

Houses and apartments prices are up over 5% since last year. Construction and renovation costs are up over 10% from last years. City taxes in response to real estate price increases are set to increase over 20% in the next three years.

During this time, government measured inflation is allegedly hovering around 2.5% to 3% on both side of the Canadian-American border with core rates at 2% or so. In Canada, like in the USA this 2% rate will be the one used to increase wages. This is not the year where average Joe and Jane should expect their wealth to increase.

The same rate is used for pension-plan indexation. No wonder that retirees find it more and more difficult to maintain their lifestyle. A recent study by Statistics Canada shows that over 15% of people aged 65 or more are still working, up from less than 10% a few years ago. The same trend is seen in the 55-64 years category.

A similar rate is also used to deflate the GDP. We may not be yet in a recession but the economic growth clearly is not what is suggested by official numbers. Conventional wisdom suggests that the stock market reflects the state of the economy to come with a 6 to 8 months lag. Since 2000, the TSE is basically zigzagging around the same level as is probably the economy in real terms.

We have not experienced spectacular inflation rates yet, at least in the government numbers, but anyone with investments in the stock market, or who has purchased a home after 2000, or who is doing his groceries every week and paying his bills each month should start to wonder what the heck is going on with his money and his wealth before it is too late...


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