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Demystifying the economy | Do variations in inflation add up?

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Every Saturday, one of our journalists answers, in the company of experts, one of your questions on the economy, finances, markets, etc.

When we talk about inflation, we hear that it is a 5% increase for June. In July, another 5%. Does that mean 10% in total?

Denis Charon

We followed the data about inflation in 2022 a lot. Each of Statistics Canada’s announcements caused a stir, because the figures often exceeded the previous ones. They then slowed their growth to 6.9% in October.

What does that mean, exactly?

Quite simply, between October 2021 and October 2022, the consumer price index increased by 6.9% in the country.

To make this calculation, Statistics Canada measures the increase in prices on our purchases, from food to gasoline, two poles of expenditure which have largely driven up inflation this year.

“Inflation has been presented for a long time according to the annual shift,” says professor of the economics department at UQAM Dalibor Sevanovic.

“Inflation is calculated as the percentage change between this month and the same month last year. And we do that every new month. That’s why we have big numbers like 5% or 6%,” explains Dalibor Sevanovic, also co-holder of the UQAM ESG Macroeconomics and Forecasting Chair and CIRANO Fellow.

“It gives inflation over a year, as calculated in June or July, continues the professor. This means that during those months, on average, inflation was 5%. »

Now, Mr. Caron wants to know if this rate is cumulative.

The answer is no.

Increases are calculated from year to year.

Your panettone that cost you $30 last year will cost you just over $32 this year, with inflation at 6.9%.

“If we wanted to add, continues Dalibor Sevanovic, we would have to calculate the monthly variation. In this case, for the month of June, we would have the percentage change between the month of May and the month of June. Then, we would have the monthly variation between June and July. »

For example, if the monthly inflation rate between September and October is 0.6% and the inflation rate between August and September is 0.4%, there has been an inflation rate of approximately almost 1% during these two months, illustrates the professor.

Many consumers will find that it is easier to have a comparison from one year to the next to properly understand the evolution of prices, at the grocery store for example, because it gives a more global idea.

On the other hand, trends escape them.

“In the annual variations, we do not see short-term movements, adds Dalibor Sevanovic. We do not see that prices are starting to fall or rise. »

You can also make an observation over a longer period of time. A few years, he said.

“We could calculate how much prices have increased over the past five years. »

And sometimes you have to. In 2020, we had deflation, recalls the professor with great wisdom, since this period seems very far to us.

“If we compare the prices from 2022 to 2021, there has been an increase, but if we compare them to 2019, the increase is less marked. And you have to compare with wages, because yes, prices are rising, but wages are also rising. The question is: are wages rising as much as prices? »

Looking at prices alone is not enough, he says, because at the end of the day, what matters is purchasing power.

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