The official inflation rate is a “poorly calibrated thermometer”, says the MEI

The official rate of inflation is a

MISE À DAY

The deterioration in purchasing power is much more pronounced than the official rate indicates, say researchers at the Montreal Economic Institute (IEDM), who question the calculation method.< /strong>  

According to them, the official method for calculating the rate of inflation “does not reflect real inflationary pressures”, because it relates to what happened during of the past year.

“The rise in prices and the loss of purchasing power are subjects that interest and directly affect all Quebecers, who must be able to consult a well-calibrated speedometer. Being calculated over the entire year that has just ended, the current inflation rate looks to the past,” indicated Nathalie Elgrably, Senior Economist at the MEI.

A prospective and not retrospective rate

To fill this gap, the MEI proposes to create a “prospective rate of price inflation”, i.e. “a compound and annualized rate calculated from the rate change in the last quarter's CPI”.

“Rather than shining a spotlight on the erosion in purchasing power from a year ago, the forward-looking rate sheds some light on the erosion that lies ahead if the [Consumer Price Index] continues. momentum,” explained Valentin Petkantchin, economist and vice-president of research at the MEI.

“Instead of being informed about the loss of purchasing power recorded during the last year, we would rather be informed about the inflationary pressures that we are currently experiencing, by extrapolating them on an annual basis, that is to say over the next 12 months,” he added.

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Thus, according to MEI researchers who have worked on the subject, thanks to the prospective rate, we could have seen that the first sign of an inflationary surge exceeding the 2% target would occur in July 2020, “ nearly a year before the official statistics indicated a deviation from the target”. Another example, the prospective rate was 12.5% ​​last May, before falling back below 10% in July.