Financial security Governance Housing Monetary policy

Was ‘Great Recession’ deeper in Canada than US, and is that even a valid comparison?

Chart 1 Canadian and US real GDP, 2007-2011
Chart 1 US and Canadian GDP 2007-2011
Source(s): Statistics Canada and U.S. Bureau of Economic Analysis

Editor’s Note: This post was inspired by a note from a friend of and frequent contributor to this site, which has since been posted as a letter to the editor of the Globe and Mail’s Report on Business.

With the Canadian general election campaign in full-swing amid incessant ‘technical recession’ chatter, it should come as no surprise to once again see finger-pointing at the (current/outgoing?) government’s performance during the Great Recession.

A recent Globe and Mail op-ed attempted to do just that. Unfortunately, it was riddled with factual errors and otherwise muddled whatever criticism it intended to parry.

Accountability Monetary policy

Bank of Canada adopts ‘ad hoc’ monetary policy as inflation-targeting agreement renewal looms


In the run-up to the 2016 renewal of its inflation-targeting agreement with the Government of Canada, the Bank of Canada (BoC) has been openly musing about whether it should continue the practice of identifying one preeminent measure of inflation as its operational guide, and whether that measure should continue to be the core consumer price index (CPIX). In 2013, the BoC published a working paper proposing an alternative measure of inflation it called the common component of CPI (CCCPI).1 In a speech delivered last November, its Deputy Governor suggested the CCCPI will be the Bank’s preferred operating guide going forward.2

Both the BoC’s research and its Deputy Governor’s statements emphasise the common component’s supposed advantages relative to CPIX, but not its limitations. However, comparing the two measures and taking a closer look at the CCCPI, the new measure’s supposed advantages are less than obvious, and its limitations seem significant.

Governance Monetary policy Transparency

2013 SHS: A few questions in light of the upcoming CPI basket update

Figure 1 SHS response rates 1997-2008
Source: The Importance of the Long Form Census to Canada, David A. Green and Kevin Milligan, Canadian Public Policy – Analyse de politiques, vol. xxxvi, no. 3 2010

This Thursday, Statistics Canada will be updating the Consumer Price Index (CPI) basket weights with the latest results from its 2013 Survey of Household Spending (SHS). While this CPI basket update will be the second undertaken since a major SHS redesign in 2010, little information about the household spending survey has been made publicly available since then. Statscan stopped producing public use micro data as well as data quality reports for the SHS immediately following the redesign.  The official reason: “There will be no public use microdata file (PUMF) for SHS 2010 due to resource constraints.”

Statscan’s sudden lack of transparency following years of declining data quality and a significant overhaul of its key household spending survey is cause for concern.

Financial security Governance Monetary policy

Is Canadian housing price inflation an intended policy outcome?


During the press conference following the Bank of Canada (BoC) July 2014 Monetary Policy Report, bank governor Stephen Poloz was asked whether the Bank was making up excuses – likely in response to his “serial disappointment” remark – to avoid raising its target rate. A lower rate benefits the federal government in a number of ways, primarily by lowering its debt servicing and public spending costs. However, the dangers of an extended period of low interest rates include excessive household debt accumulation, particularly mortgage debt.

But what if the BoC views excessive housing price inflation as a key economic driver – and that view is affecting its policy rate decision?

Financial security Housing Monetary policy

Canada’s housing price stats likely contributed to inflating bubble

Chart 1 Statistics Canada,Bank of Canada and Teranet-National Bank housing price indices
Chart 1 Statistics Canada , Bank of Canada and Teranet-National Bank housing price indexes

At the July 2014 Monetary Policy Report (MPR) press conference, Bank of Canada Governor Stephen Poloz announced the Bank would be keeping its policy rate in “neutral” for the foreseeable future. While introducing a new catchphrase – “serial disappointment” – the MPR report and the Bank governor’s comments gave short shrift to the over-heated Canadian housing market, which continues to be fuelled by historically low interest rates. Despite conceding “particularly strong” price growth over the past year and “near record-high house prices and debt levels,” the Bank insists housing is in for a “soft landing”.

While the lack of housing market information has been a popular topic of late, a closer look at the little available info on housing prices may shed some light on why the Bank has downplayed rising home prices, and why if or when the housing bust happens the Bank will say it didn’t see it coming.

Monetary policy

Exclusion of wealthy households from CPI among issues likely confounding Bank of Canada


A few months ago, Bank of Canada Governor Stephen Poloz announced he was giving up on economic models as the Consumer Price Index (CPI) stubbornly remained at or below the Bank’s target minimum rate. Then suddenly the CPI rose and remained at or above the Bank’s target midpoint as other economic indicators continued to show slack. Last week Mr. Poloz attributed the recent price surge to “temporary effects” while announcing the Bank was exploring a ‘neutral interest rate’ policy, effectively abandoning inflation targeting.

A closer look at how the CPI is produced may shed some light on why the measure has confounded the Bank of late.