People have been asking me, “Why is it that the cost of living seems to keep going up and up while the Consumer Price Index is hardly moving at all?”

I think the answer is fairly straightforward. Our impressions, yours and mine, about the cost of living are based on day-to-day purchases. The Consumer Price Index (CPI) is more all-encompassing. (The latest increase in the “all items” CPI was only +1.7%.)

There are several major areas in which prices have been moderating on a year-over-year basis: mortgage rates and other consumer borrowing costs; motor vehicles; recreational and computer equipment; fruits and vegetables; and clothing and footwear.

It’s good news for consumers that prices in these areas have abated. However, for several of these products areas − a mortgage refinancing, a new car purchase or acquiring a home entertainment centre or new computer station − the decision to purchase takes longer and is more staggered than for most other items, such as gasoline and food.

Let’s look at some major consumer expenditure areas. It seems fortuitous that the current mix of food prices encourages all of us to eat healthier. Fruit (-3.6%) and vegetable (-12.7%) prices have fallen, partly because they were artificially high after a vicious frost in California last year. The biggest bargains, according to Statistics Canada, are apples (-6.3%) and oranges (-27.3%). Also remember that the rise in value of the loonie has helped with the price of imports from the United States.

On the other hand, grain prices are way up due to strong worldwide demand. The bakery and cereal products category is ahead significantly (+9.9%), with pasta (+23.2%) and flour (+38.3%) showing the largest gains.

When grain prices rise, meat prices often drop. An increase in the price of feed causes farmers to sell off their herds, putting more supply on the market. Meat prices generally (-0.4%) are about even with last year. Fresh or frozen pork prices have fallen the most (-1.8%) in this category.

Mortgage interest cost (+8.7%) is up significantly, but this is due to house price gains. Mortgage rates have declined along with the cuts in the “target overnight rate” carried out by the Bank of Canada since last December. For some individuals, there is the potential to gain more discretionary income through renegotiating their mortgages.

A big area of price decline is in motor vehicle purchases (-6.5% year over year), both new and used. However, not everyone is going out and changing his or her vehicle. Therefore, the visible impact of savings in this area is somewhat limited.

Household furnishing and equipment prices (-1.4%) are also in decline. This category includes appliances (-1.3%). Again, however, these are items for which expenditures are more intermittent than day-to-day.

One significant area of price relief is to be found in clothing (-5.1%) and footwear (-3.6%). Many of these products are coming from overseas, mainly China. The Chinese yuan has climbed versus the American dollar, but is still down versus the loonie from a year ago. There are reasons to be concerned about trade with China, in terms of jobs lost, but the break it gives to average consumers on the price front isn’t one of them.

But here’s the crux of the problem. The following are some of the more dramatic day-to-day cost of living increases on a year-over-year basis: fuel oil for the home (+36.9%), but not natural gas (which is -1.3%); gasoline for the car, truck or SUV (+11.6%); municipal water charges (+9.4%); cablevision and satellite services (+6.6%); child care services (+6.2%); telephone services (+5.1%); homeowners’ insurance (+3.9%); property taxes (+3.8%); public transportation (+3.5%); and tobacco products (+2.8%).

It’s the products in the above paragraph that cause one to shake one’s head upon opening the utility bills at night or while standing at the cash register in the local variety store. Immediate pain becomes more firmly impressed on one’s awareness than the results of a more thorough consideration of all the long-term ups and downs. The day-to-day cost of living increase is starting to pack a wallop.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

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