# Hot-dog prices a factor in BOC's inflation conundrum



## Beaver101 (Nov 14, 2011)

*Higher prices for meat, phone services and cars, tumbling energy costs and a weaker dollar that boosts import prices: these temporary shifts obscure the overall trend, says Bank of Canada Governor Stephen Poloz *

http://www.thestar.com/business/2015/05/26/hot-dog-prices-a-factor-in-bank-of-canadas-inflation-conundrum.html



> Bank of Canada Governor Stephen Poloz’s view that rising prices for meat and other products is a temporary trend doesn’t sit well with Terry Scanlon, who sells hot dogs a few blocks from Poloz’s office in Ottawa.
> 
> *Soaring costs for meat forced Scanlon to increase the price of his wares at Hot Diggitty Dog by 25 per cent last month.*
> 
> ...


Now they're replacing the CPI with hot-dogs as an inflation measure or was the CPI all theory?  

Can the resident-expert-economist please explain this.


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## sags (May 15, 2010)

Someone could also explain calling a hotdog "meat".

I always thought of them as a "meat like substance" of unknown origin.

But I still love them.................


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## RBull (Jan 20, 2013)

The headline is misleading and the context of the story baffling. How in any way does it say CPI is being replaced by hot dog pricing? 

The story is simply about a hot dog vendor forced to raise his prices by 25% vs. BOC saying some costs factored into CPI are temporary due to currency fluctuations. 

CPI includes fresh meat and processed meat- which might include hot dogs- probably the same way its been done for many years.


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## Davis (Nov 11, 2014)

I think the headline writer didn't read the article. Yes it talks about monetary policy, and yes it talks about rising hot dogs prices, but no, it does not suggest that hot dog prices have any impact of monetary policy. It's surprising, because usually the Star is carefully and thoughtfully researched and written <snort>.


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## Beaver101 (Nov 14, 2011)

Davis said:


> I think the headline writer didn't read the article. Yes it talks about monetary policy, and yes it talks about rising hot dogs prices, but no, it does not suggest that hot dog prices have any impact of monetary policy. It's surprising, *because usually the Star is carefully and thoughtfully researched and written <snort>.*


 .. LOL! That's why it attracts readership, much like the National Enquirer or other tabloids. :biggrin:


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## Beaver101 (Nov 14, 2011)

RBull said:


> The headline is misleading and the context of the story baffling. How in any way does it say CPI is being replaced by hot dog pricing?
> 
> The story is simply about a hot dog vendor forced to raise his prices by 25% vs. BOC saying some costs factored into CPI are temporary due to currency fluctuations.
> 
> CPI includes fresh meat and processed meat- which might include hot dogs- probably the same way its been done for many years.


 ... that's why I posted and hoping an economist provide clarification.


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## Rusty O'Toole (Feb 1, 2012)

The government keeps fudging the numbers in various ways. All their 'adjustments' aimed at pretending there is no inflation. If inflation was calculated the way it was before 1980 it would be 10% - 12% .


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## Beaver101 (Nov 14, 2011)

^ Would seem like it ... glad someone in the real world has clarified it, thanks.


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## lost in space (Aug 31, 2015)

Was back in Canada during the summer and everyone was complaining about the price of food going up. I also emailed my niece, a hard core YNABer and she commented that her food budget is up 50% over the last couple of years. Part of that is due to kids but not all of it. 

Anyways outside of food are you noticing inflation as well? 

Mentioned this elsewhere I live in the Euro zone and it's almost deflation


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## sags (May 15, 2010)

I believe that rents are rising quite a bit in some places.

Rising municipal taxes are normal these days, and our home water heater rental keeps inching up a little every couple of months.

Basically, the things we use and purchase every day are going up, while things we buy occasionally...........like clothes and electronics goes down.

The price of gas had kept the inflation rate down, but we don't drive enough to care.

I think most Canadians believe inflation is higher than is reported.

What is happening.............at least around here, is that people are changing their shopping preferences.

The lower end stores are very busy, and the higher end stores are begging for customers.

Except for meat and specialty products. The upscale deli types of stores are also busy.

And Costco.....................is a madhouse at any time of day.

I wonder how the fancy restaurants around us stay in business. There never seems to be any cars in their parking lots.


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## lost in space (Aug 31, 2015)

sags said:


> I believe that rents are rising quite a bit in some places.
> 
> 
> Basically, the things we use and purchase every day are going up, while things we buy occasionally...........like clothes and electronics goes down.


Thanks that's the same impression I've been getting from my family as well, especially food


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## peterk (May 16, 2010)

Finally found T-bone steak for $18/kg last week. Haven't seen any of the premium steaks (T-bone, striploin, ribeye) for under $20/kg for many months now. Usually they'd go on sale quite regularly for $15/kg, especially throughout the summer, but this year it's been $25/kg and up with few exceptions.

I always just gave my sausage/hotdog vendor at university $5 and told him to keep the change. He was a cool guy.


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## Davis (Nov 11, 2014)

sags said:


> I think most Canadians believe inflation is higher than is reported.


And a lot of people believe that Elvis is still alive, despite all evidence to the contrary. People are free to believe whatever makes them happy.


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## HaroldCrump (Jun 10, 2009)

Davis said:


> And a lot of people believe that Elvis is still alive, despite all evidence to the contrary. People are free to believe whatever makes them happy.


That is a nonsensical comparison.
It is not a matter of belief, but a simple matter of looking at grocery store receipts and recurring bills like hydro, gasoline, etc.

I happen to have every single expense recorded, broken down by category (grocery, gas, etc.) for last 11 years.
I have older data too, but it's not as detailed.

YMMV, of course, since everyone is different, household composition is different, and response to rising/falling prices is different.


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## Davis (Nov 11, 2014)

I won't question your personal inflation rate. You may well be above average. What I am questioning is the _perception_ that many people seem to have. The average of all of our personal inflation rates will be the national one. The isn't Lake Wobegon where all of the children are above average. 

I would expect that very few people have tracked their expenses the way you do. It comes back to people being loss averse. We notice the prices that go up faster that our incomes and feel that pain. We don't notice so much the prices that are going down or are not going up as fast as our salaries as much as the ones that go faster.


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## HaroldCrump (Jun 10, 2009)

Davis said:


> What I am questioning is the _perception_ that many people seem to have.


I understand, but my point is that this perception is not without cause and has validity.
Modern day inflation calculation i.e. CPI (or PCE, rather, as the "new" CPI is now called) understates inflation.
This is the reason most people have a vague, lingering feeling that there is something wrong because the gummint says inflation is 1.2% but that is not what they see when they look at their household bills.

The reason lies in how PCE is calculated and the dozens of "adjustments" made to it.
Substitution is the big one.
While it is true that households substitute products as prices go up, if such adjustment is applied to PCE calculation, then it is not really measuring inflation, is it?
It may be measuring "current cost of living" (debatable), but it is not measuring the increase in prices.

One example from my own budget tracker.
I see that in the last 8 yrs. or so, the price of Canadian made butter has gone from $1.97 / lb. to $3.97 (same brand).
I could substitute with margarine, which is $2.50 / lb

So, stats would adjust the basket and say my cost of living has gone up "only" 26%, however, in reality is has gone up 66% during this time.
Annualized for 8 yrs, this works out to about 3% "inflation", however, in reality it is an annualized 6.5% increase in prices - more than double.

Here is an *excellent blog article *by Edward Harrison on some of the adjustments made to CPI/PCE that leads to understating "inflation".

The official "inflation" numbers are completely meaningless for individual consumers.
People need to stop thinking of CPI numbers as "inflation" or use it as a basis for their personal finance and investment decisions.

For instance, retirees buying RRBs and thinking they are protecting themselves against "inflation" is foolhardy.
They will lose their shirt over a period of few years.
Their standard of living is going to fall drastically.

One day, 8 - 10 years later, they will find themselves sitting in the dark because hydro got disconnect for non payment of bills, chewing soy beans because the gummint said soy protein is equivalent to meat protein and wondering if inflation is 1.2%, how come his income from RRBs don't allow him to have the same standard of living as 10 yrs ago.


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## cainvest (May 1, 2013)

It would be cool to see some HCI (HaroldCrump Inflation) data for common food items to compare now, 5 and 10 yrs back. Even just a few standard food items like lean ground beef, pork, bread, milk, etc would likely give a good indication of real inflation.


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## Davis (Nov 11, 2014)

Statistics Canda measures inflation using CPI. PCE seems to be a US Bureau of Labor Statistics thing as far as I can tell. The blog article by Edward Harrison is about the US. There are ways in which CPI overestimates inflation. CPI tracks the prices of a fixed basket of goods, which seems to be updated every two years. "The CPI maintains fixed quantitative proportions (weights) between goods and services during the life of a given basket. The baskets are updated periodically to take into account changes in consumer expenditure patterns. In February 2015, with the release of the January 2015 CPI, the basket reflecting the 2013 expenditure patterns replaced the 2011 basket." (CPI methodology from StatsCan)

If you do not vary your consumption as prices rise and fall, then yes, your inflation rate will exceed the CPI change. StatsCan, however, changes the basket on the basis of Canadians' collective expenditure patterns, so on average, CPI tracks the change in the cost of living the Canadians are actually facing, not a hypothetical scenario where they don't change their spending patterns.

It would make sense for everyone to track their own expenditures in order to get exactly the right answer for financial planning purposes, but few people will do that. CPI provides a better approximation than "a vague, lingering feeling that there is something wrong" that is supported only by anecdotal examples. I remember in the 1970s that a 750 ml bottle of pop was 49 cents. Now you can get a 2L bottle for 99 cents, 40 years later. It doesn't matter to me because I don't drink the stuff, but lots of people do, so it is a valid counter example.


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## HaroldCrump (Jun 10, 2009)

Davis said:


> The blog article by Edward Harrison is about the US.


It is equally applicable in Canada because StatsCan also makes the same adjustments such as substitution, hedonistic, etc.



> CPI tracks the prices of a fixed basket of goods, which seems to be updated every two years.


Not quite fixed, is it then?
Updates every 2 years gives them lots of leeway to add and drop items as they go up/down in price.
Basically, if it's gone up, drop from basket.
Inflation will always be 1.2%.



> The baskets are updated periodically to take into account changes in consumer expenditure patterns


That is nothing but substitution effect.



> If you do not vary your consumption as prices rise and fall, then yes, your inflation rate will exceed the CPI change. StatsCan, however, changes the basket on the basis of Canadians' collective expenditure patterns, so on average, CPI tracks the change in the cost of living the Canadians are actually facing, not a hypothetical scenario where they don't change their spending patterns.


I agree it is rational to change spending pattern based on rising/falling prices of specific goods.
But then it is not measuring a rise in prices, is it?

If wages are not growing just as fast (and we know for a fact that they aren't), then consumers are substituting cheaper or lower quality products in order to maintain their savings rate.
And we know that despite best effects, savings rates are low, household debt is high etc.

Bottom line is - if you are not going to include items whose prices are going up, then you will never "see" inflation.
You will always see 1% - 2% "inflation", which is basically the rate of GDP growth, give or take.


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## Davis (Nov 11, 2014)

The Bank of Canada says that CPI overestimates Canadian inflation by 0.5% per year in this backgrounder. This view is endorsed by Queen's University professor of economics Gregor Smith in this CD Howe Commentary. I think that the Bank of Canada has a lot of credibility - more even than a former American diplomat who has an MBA. There are lots of blogs out there, but blogs are not held to the same rigour as research published by a central bank or in an academic journal. In fact, there is no rigour applied to blogs at all. Anyone can post anything they want, whether it is is true or not, and unfortunately, many people do.

Yes there is substitution effect because people substitute. People often substitute to lower price products and get higher quality as new or improved products become available. Some people will continue to pay $90 a month to Rogers for cable, while everybody else is switching to Netflix for $8 or free streaming, and getting more selection of TV programs. It makes sense to remove tape decks and CD players from the basket of goods since people are now streaming their music and getting access to immense libraries of digital online music, instead of puny personal libraries of tapes and CDs.

Stats Can does not "drop" items who prices have risen; it changes the weight in the index to reflect how Canadians have changed their spending patterns. I think that you should be careful with the tone of your posts. Some people could read them as suggesting that there is a government - sorry, "gummint" - conspiracy to trick people. I don't know whether that is what you believe. No amount of evidence or facts or reason is going to change the mind of someone who believes there is a conspiracy. 

It is important I am just trying to provide a rational counterpoint so that other readers don't think that CMF is being taken over by conspiracy theorists. Hence the Elvis reference.


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## HaroldCrump (Jun 10, 2009)

cainvest said:


> It would be cool to see some HCI (HaroldCrump Inflation) data for common food items to compare now, 5 and 10 yrs back. Even just a few standard food items like lean ground beef, pork, bread, milk, etc would likely give a good indication of real inflation.


Oh I got lots of examples, just ask 
It is a little time consuming to find items year by year and then create tracking spreadsheet for them - just haven't gotten around to doing it.
Here is one other example:

We used to buy Sunlight laundry detergent for $9.99 6.80 Kg. in 2009.
These days we are buying the same thing for $13.99, but it's only 4.50 Kg.

On a per kg basis, that is nearly a doubling of price (i.e. 100% inflation) - $1.46/kg vs. $3.08/kg.










One thing my records don't track is shrinkflation.
I do record item description and price, but I haven't been recording quantity (usually).
I remember the quantity of washing powder very well because I am the designated laundryman in our household 

Maybe some day I will sell all my data to someone like Peter Schiff for millions of $$ when he writes the 10th edition of his book.
That is my retirement plan... :biggrin:


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## cainvest (May 1, 2013)

HaroldCrump said:


> Oh I got lots of examples, just ask


How about any of the ones I mentioned in the previous post (milk,beef,pork,bread,etc) ? 



HaroldCrump said:


> We used to buy Sunlight laundry detergent for $9.99 6.80 Kg. in 2009.
> These days we are buying the same thing for $13.99, but it's only 4.50 Kg.


Tough one to compare as you can't judge by Kg as different amounts could needed (concentrated) per load, so do you know the price per load for each?

Current Example, non-HE: Sunlight 40 loads = 1.47Kg for $5.99 and on another box (different store) 40 loads = 2.27Kg for $6.97

And of course one has to exclude the possibility of their new "load amount" not cleaning as well as the old amount so other products with less subjective quantities would be better to compare.


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## Davis (Nov 11, 2014)

So we have literally _several _examples now. The CPI on the other hand, tracks 691 product classes across a broad spectrum:

"The product classification is a hierarchy of 691 elementary product classes up to the All-items CPI. There are ... eight major aggregates (“Food”, “Shelter”, “Household operations and furnishings”, “Clothing and footwear”, “Transportation”, “Health and personal care”, “Recreation, education and reading”, and “Alcoholic beverages and tobacco products”)."

It is compiled by statisticians and economists who are trained and paid to do this, using documented methodologies and powerful computer programs. People are free to rely on anecdotal evidence if they prefer....


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## cainvest (May 1, 2013)

Just a few examples using US data (easier to find)

1995 - 2015 (avg. yearly % increases)
Milk 1.9
Bread 3.25
Bananas 0.75
Chicken 2.75
Tomatoes 2.25
Coffee 0.4


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## andrewf (Mar 1, 2010)

I'm surprised that the coffee inflation rate is so low. That's one of the products that seems to me rose in price more than average.


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## cainvest (May 1, 2013)

Coffee varies quite a bit year to year, 1995 was likely a high year. I didn't cherry pick any data, just took a number of random items for 1995 and 2015.


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## OnlyMyOpinion (Sep 1, 2013)

As well, here's a Statscan table of retail prices for food & selected items 2011-2015: 
http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/econ155a-eng.htm
Looks like flour and celery have come down in price - anyone have a recipe for them?


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## mrPPincer (Nov 21, 2011)

OnlyMyOpinion said:


> Looks like flour and celery have come down in price - anyone have a recipe for them?


yep 
http://www.copykat.com/2014/05/02/cream-of-celery-soup-recipe-2/


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## OnlyMyOpinion (Sep 1, 2013)

mrPPincer said:


> yep
> http://www.copykat.com/2014/05/02/cream-of-celery-soup-recipe-2/


Awesome thanks. I actually like celery soup, haven't had it for years. Ladled onto a couple of pieces of buttered toast


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