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Low Inflation Again
September 18, 2020
5:47 am
topgun
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Loonie said
On behalf of those of us who DO care about certain gov't benefits, it sounds like we shouldn't expect a rise in OAS in October. Correct?  

Yes.

Have a Great Day

September 18, 2020
7:44 am
Londonguy
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On the subject of StatsCan and CPI calculations and the inaccuracies therein, here's one of my favorite stories about data gathering systems.

A mechanic, a lawyer and a statistician are all out together one October afternoon hunting for deer. After walking through the woods for about an hour, they come across a large deer that's just standing there munching away in the middle of a clearing.

Since the lawyer had organized the trip and paid for their rented cabin, he was given the opportunity to take the first shot. He raises his rifle and takes careful aim, but he misses the deer by about 5 feet to the left.

Amazingly, the deer doesn't run away. The mechanic then aims his rifle and shoots at the deer but he also misses, this time by 5 feet to the right.

Suddenly the statistician jumps up and yells, "Nice shooting, guys, we got him!"

September 18, 2020
10:16 am
Kidd
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Have you ever seen... the gas pump price has dropped by 4 cents per litre overnight and there are lineups at the gas stations? The tv news crews interview those waiting in line, and the car owner tries to estimate how much they're saving. I've seen this play out more times than i can count.

By the math... what do you buy in gasoline, 50 litres? at a savings of 4 cents per litre THAT'S a savings of $2.00. Two dollars... the rocket scientists waiting in line estimate, 10 dollars or more.

Now, how many litres of gas do you use per week? OR how often do you fill your tank?

I eat food everyday. I eat more $$$ worth of food than $$$ worth of gas i burn.

Inflation has to be based on actual percentage of usage. There was a report a few weeks, maybe a month ago about the flawed calculation of inflation. If 30% of your net income goes toward food, then food can NOT have the same weight as your 5% of net income purchase of gasoline.

September 18, 2020
10:30 am
AltaRed
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Kidd said
Inflation has to be based on actual percentage of usage. There was a report a few weeks, maybe a month ago about the flawed calculation of inflation. If 30% of your net income goes toward food, then food can NOT have the same weight as your 5% of net income purchase of gasoline.  

Of course. Using an example for 2015 that I googled quickly https://inflationcalculator.ca/cpi-basket/ gasoline was 3.84% of the basket and food from stores was 11.62%. There are dozens of listed items. There is also the commentary on updates as per Aug 2020 https://www23.statcan.gc.ca/imdb/p2SV.pl?Function=getSurvey&SDDS=2301 One can read to their heart's content.......

September 18, 2020
2:07 pm
topgun
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Kidd said
Have you ever seen... the gas pump price has dropped by 4 cents per litre overnight and there are lineups at the gas stations? The tv news crews interview those waiting in line, and the car owner tries to estimate how much they're saving. I've seen this play out more times than i can count.

By the math... what do you buy in gasoline, 50 litres? at a savings of 4 cents per litre THAT'S a savings of $2.00. Two dollars... the rocket scientists waiting in line estimate, 10 dollars or more.

Now, how many litres of gas do you use per week? OR how often do you fill your tank?

I eat food everyday. I eat more $$$ worth of food than $$$ worth of gas i burn.

Inflation has to be based on actual percentage of usage. There was a report a few weeks, maybe a month ago about the flawed calculation of inflation. If 30% of your net income goes toward food, then food can NOT have the same weight as your 5% of net income purchase of gasoline.  

Back in 2002 I worked in one city. Gas was about $1.00. In my own city gas was $1.05. I filled up 1/2 tank at home. In 18 years the price of gas has remained the same. Yes there are some things that we know have increased. I am sure there are plenty of items that are stable. CPI is up 1.7% yearly. Total 35% in 18 years.

Have a Great Day

September 18, 2020
6:06 pm
Bill
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That's a funny one about seniors not having high food costs. My wife has apparently decided one of her retirement hobbies is to spend many of her days shopping for and making food for our adult children and their partners and families (according to her none of them eat properly, or have enough home-cooked healthy meals, or are feeding our grandkids properly, etc, etc, etc). Aside from "visitors" regularly dropping by for dinner or just to check out what can quickly be scooped from my fridge, she also takes/sends home prepared meals (and sometimes even lunches to take to work!) to them on a regular basis from what I can tell, I'm sure my food bill is WAY higher than ever! And when I tell them they're just eating their inheritance they just laugh at my funny joke. I'm feeding a small village consisting of various generations and sometimes people (the partner of the month) I'm not even sure I've met.sf-laugh

September 19, 2020
6:28 am
Londonguy
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Bill said
...My wife has apparently decided one of her retirement hobbies is to spend many of her days shopping for and making food for our adult children and their partners and families...

LOL. Glad to know it isn't just me in that situation. Just us two old farts here in the house, but any algorithm trying to analyze my credit card spending patterns must think I'm either running an underground restaurant or operating a food service delivery hub

September 21, 2020
3:49 am
rodeworthy
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Never mind figuring out how the CPI relates - I have enough on my hands figuring out our own ‘Expense vs. Budget’ in this very unusual year. But with good data, and some rational thought, all is not lost.

Much comment ensues on the increased cost of food. It is true. For us, this year so far, we have seen a 9.75% increase over the same period last year (Jan 1 – Sep 20). But 2018 was even worse with a 16.9% increase for the year. We have seen wide fluctuation in food costs, up and down, over the years. No doubt our expenses are skewed by the fact we spent 9 of the last 13 years travelling in the SE and SW USA for 5-6 mo. each year. Food costs in that area are considerably cheaper than here. YMMV.

Grocery-Expene-2010-2020.gif

And we don’t even have the “warm” feeling that Bill and Londonguy have, knowing they are contributing to “feeding the masses”.

When we look at the actual money spent for the year so far, it is clear we are very much limiting ourselves to non-discretionary expense and it shows. The isolation imposed by the pandemic pretty much dictates that reality.

The following chart displays this graphically. A whopping 25% of the money spent has gone to Groceries. Another 23% for Utilities. Add in Insurance, Municipal Taxes, RV storage cost and we have accounted for ~75% of the total money spent. Contrast that to the Budget allocated for the year and we are clearly not working within our plan.

Numbers (and charts) can be deceiving. We are not working outside our plan. If we spent more, as in normal years, these non-discretionary costs would show a different story. But maybe it is time to take a few bucks out of the Vacation allocation and dedicate it to Groceries. Soon be time to write up the plan for 2021. Here’s hoping for a better year then.

Expense vs Budget
2020-Actual-Expense-vs-Allocated-Budget-to-200920-1.gif

September 21, 2020
6:52 am
pooreva
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rodeworthy said
travelling in the SE and SW USA for 5-6 mo. each year. Food costs in that area are considerably cheaper than here.

American food might be cheaper than ours but quality is way, way worse. I try to avoid American food as much as I can. Way too much chemical, antibiotics, GMO, who knows what kind of other drugs they are pumping into meet, fruits and vegetables...
Thus I NEVER shop at Costco.

September 21, 2020
9:23 am
Kidd
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Rodeworthy, then I gather you and I are in agreement, inflation does exist, it’s real and it’s not the measly 0.1% as reported?

I also track my expenditures but not in percentages, in real dollars and I have nowhere near the number of categories you use. My fields are very basic, cash, visa, home maintenance (which includes all utilities), prop tax, income tax, insurance, etc.

I have no set goal on expenditures but when the likes of my Home Insurance goes up 17% in 2019 and then another 12% in 2020, I deliberately cut back or delay my purchase of pleasure items, which in turn hurts the economy.

It’s an argument I've made many, many times, when the Canadian government or corporate Canada increase my burden, I in turn do my best to fulfill their ultimate goal. I slow my spending habits to help create the 100% unemployment environment they so longingly desire. Yes, I believe in a hidden agenda.

Money is best served in the hands of the consumer, in the hands of those who have rightfully earned that money.

September 21, 2020
9:53 am
Bill
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Actually, pooreva, California has the strictest environmental and health regulations in the world re food, health, auto safety and emissions, etc, etc, you'll notice when you buy stuff there's sometimes a reference to meeting the California requirements. So manufacturers have to meet those standards to sell in California and that makes lots of our stuff healthier and safer than it would be under our own or other USA/state standards.

But I agree re plentiful cheaper food in USA, cheaper to replace nutrition with sugar, fat and/or salt and they seem to love it.

Kidd, I don't see how it would be in corporate Canada's interest to have 100% unemployment, but you may be right about an agenda, I don't know.

September 21, 2020
10:11 am
Norman1
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Statistics Canada releases a lot more data than just the overall +0.1% increase in CPI for the 12 months ending August 2020. One can see more of the dataset in Consumer Price Index, monthly, not seasonally adjusted.

Not everything was up 0.1% during that time. Food was up 1.8%. Shelter was up 1.5%. Gasoline was down 11.1%.

September 21, 2020
7:19 pm
Loonie
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Gordon Pape made some comments about inflation in his column within the last few days. He said he believes inflation is coming. He says the US and Canadian central banks have both decided not to hold inflation to 2% going forward. Is this true?
Sounds like another way to make sure the consumer pays for covid.

September 21, 2020
7:39 pm
Jon
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Good job Roadworthy, the visualization of your budget is amazing, and it can truly point out problems in spending. I am wondering how you make it possible, is it just an Excel file.

I think the CPI figure need to be more customized so it can be better at reflecting the realities. Maybe the government should try to create different basket base on different gender, age group, marital status, and number of children in a household.

The reason why an accurate CPI figure is important is because people may spend more money when they believe inflation is higher than the CPI figure, which actually induce higher inflation.

September 21, 2020
8:22 pm
Norman1
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Loonie said
Gordon Pape made some comments about inflation in his column within the last few days. He said he believes inflation is coming. He says the US and Canadian central banks have both decided not to hold inflation to 2% going forward. Is this true?

According to New Economic Challenges and the Fed's Monetary Policy Review, the US Federal Reserve will now hold inflation to an average of 2% instead of to 2%:


We have also made important changes with regard to the price-stability side of our mandate. Our longer-run goal continues to be an inflation rate of 2 percent. Our statement emphasizes that our actions to achieve both sides of our dual mandate will be most effective if longer-term inflation expectations remain well anchored at 2 percent. However, if inflation runs below 2 percent following economic downturns but never moves above 2 percent even when the economy is strong, then, over time, inflation will average less than 2 percent. Households and businesses will come to expect this result, meaning that inflation expectations would tend to move below our inflation goal and pull realized inflation down. To prevent this outcome and the adverse dynamics that could ensue, our new statement indicates that we will seek to achieve inflation that averages 2 percent over time. Therefore, following periods when inflation has been running below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.

I don't know if the Bank of Canada has also made the same change to average inflation targetting.

September 21, 2020
9:09 pm
Vatox
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I’d like to hear why inflation is going to go up! I don’t see any reasons for increased inflation, I see many reasons for low inflation and even deflation.

September 21, 2020
9:37 pm
Kidd
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Covid is costing businesses money, that additional cost gets passed along. I would call that inflation. In toronto ontario, our transit system has been running with empty buses for the last 6 months, the loss to the ttc alone is something well over 500 million dollars.

All the masks and hand sanitizer??? Dentists are charging an additional $65 to cover their covid costs.

September 22, 2020
12:09 am
Vatox
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I’m thinking, that with the second wave of Covid-19 gaining speed, that more restrictions are coming and demand will fall. Falling demand and restrictions on businesses won’t create inflation. CERB is also ending.

September 22, 2020
3:14 am
Loonie
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There will be some new or revived restrictions due to covid, but they are terrified of more businesses going under, which is arguably more important to them than human lives and health, so it won't be directed at them.
It will be directed at individual and group behaviours in uncontrolled settings. They are relying on the fact that PPE, sanitizers etc are now widely available and on schools, businesses and merchants putting protocols in place to keep people apart or at home but still working. The intention is to keep people working.
Clearly, some of this will break down, but they are crossing their fingers that it will not be of such a magnitude that they would be forced by public pressure to go to general lockdowns.

I think there will be inflation for several reasons.
There are increased costs across the board, for pretty well every kind of business or undertaking, in order to deal with covid; these will be passed on. Dentists are the tip of that iceberg.
Second, there are already shortages or sporadic supplies in some grocery items. Low supply leads to higher prices. This likely will increase over winter.
Then there is the problem of things getting across the border. We rely on a lot of imports. Trump is trigger-happy on tariffs generally and has already said that he wants our border with the US re-opened soon - no doubt before the election so that he can claim that he has closed that file. If he decides to do it, he won't care if it's legal. Trade wars always cause inflation.
In addition, if there is increasing civil strife in the US, which I think is very likely, in regards to the election and related issues, it could disrupt transportation from California etc. He doesn't care if California doesn't thrive because they are never going to vote for him. He cares only about the swing states.

I'd like to be wrong. Low-to-no-inflation suits me fine as a saver.

Pape didn't explain clearly why he thought inflation was coming. His focus was on recommending defensive stocks.

September 22, 2020
5:07 am
Kidd
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If the covid numbers continue to trend upwards, governments will without doubt, be forced to close or restrict businesses. LTC homes can not be allowed to suffer the high casualty rates of the first wave. A preemptive move has to be taken for those living in that environment. I would expect LTC facilities to close by the end of this week, if the case numbers do not improve.

Covid Testing... this i find disappointing. The preparedness for a 2nd wave didn't happened. Only now, with the case numbers on the rise is ontario talking about expanding testing facilities, to maybe a drug store near you. I myself would soon rather die, than to wait in a line-up for 5 or 6 hours to have my nose swabbed. If i feel like shit, i will presume i have it and act accordingly.

I am very interested in having an antibody test done but again, I will not line-up to get it, when or if they become available.

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