The seven (potentially) standalone graphs in this article show how inflation, according to the traditional Consumer Price Index (CPI) means of measurement, has been heating up in both the U.S. and Canada.
The U.S. is seeing a little more rapid price movement than is Canada. America’s CPI-U (inflation for all urban dwellers) was +5.4% year over year in July versus Canada’s comparable figure of +3.7% y/y. For both nations, though, the rate of upwards price movement is currently the fastest in a decade-plus.
Central banks usually adopt a +2.0% y/y general price increase as their target. They’re accepting a more rapid pace as a perceived necessary side effect for the economy to escape the clutches of the pandemic. Eventually, however, they’ll wish to restore that +2.0% goal.
The key question is whether returning to such a modest rate of inflation will be easy to achieve (i.e., counting on present price climbs being due to temporary shortages that will even out over time) or will require a hard tough slog (i.e., a slowing of the economy through unwelcome and perhaps severe interest rate hikes).
For the economy at large, having never experienced anything quite like the last 16 months, there are no roadmaps with definitive signposts along the way.
(Not Seasonally Adjusted)
![In the U.S., the July 2021 changes in the energy sub-component index were +23.8% y/y & +1.7% m/m (NSA). Gasoline was +41.8% y/y & +2.5% m/m (NSA).](https://www.constructconnect.com/hubfs/Blog%20Images%20and%20Media/Can-vs-US-Inflation-Core-Jul-21-1.png)
The U.S. figure (CPI-U) is the All Items Consumer Price Index for All Urban Consumers.
*Core inflation is CPI-U less its often most volatile sub-components, food and energy.
Chart: É«ÖÐÉ«.
(Not Seasonally Adjusted)
![In Canada, the July 2021 changes in the energy sub-component index were +19.7% y/y & +2.6% m/m (NSA). Gasoline was +30.9% y/y & +3.5% m/m (NSA).](https://www.constructconnect.com/hubfs/Blog%20Images%20and%20Media/Can-vs-US-Inflation-Core-Jul-21-2.png)
The Canada figure (CPI) is the All Items Consumer Price Index.
*Core inflation is CPI-U less its often most volatile sub-components, food and energy.
Chart: É«ÖÐÉ«.
(CPI & CPI-U Not Seasonally Adjusted)
![In non-CPI news, there's plenty of 'sticker price shock' to be found in residential real estate. The S&P CoreLogic Case-Shiller National Home Price Index in the U.S. was +16.0% y/y in May. The %-change north of the border, but for July, was similar according to the Canadian Real Estate Association (CREA), +15.6% y/y.](https://www.constructconnect.com/hubfs/Blog%20Images%20and%20Media/Can-vs-US-Inflation-Core-Jul-21-3.png)
Based on not seasonally adjusted (aka NSA) index values.
Chart: É«ÖÐÉ«.
(CPI Core & CPI-U Less Food and Energy Not Seasonally Adjusted)
![Worth noting is that the 'core' rates of inflation for the entire duration shown in the graph, and for both the U.S. and Canada, have never dropped to zero, not even in slowdowns/recessions (2001; 2008-09; and 2020).](https://www.constructconnect.com/hubfs/Blog%20Images%20and%20Media/Can-vs-US-Inflation-Core-Jul-21-4.png)
*Core is all-items inflation less its often most volatile sub-components, food and energy.
Chart: É«ÖÐÉ«.
Previous Month & Current Month (June & July 2021)
![The key inflation figure monitored by the U.S. Fed is the price index for Personal Consumption Expenditures (PCE), excluding food & energy. In July 2021, it was +3.5% y/y.
The Bank of Canada monitors 3 'preferred' measures of core inflation, 'common', 'median' & 'trim'. Year over year, in July 2021, they were +1.7%, +2.6% & +3.1% respectively (avg = +2.5%).](https://www.constructconnect.com/hubfs/Blog%20Images%20and%20Media/Can-vs-US-Inflation-Core-Jul-21-5.png)
Chart: É«ÖÐÉ«.
![The U.S. 'All-items' index in July 2021 was +0.5% NSA* month to month.](https://www.constructconnect.com/hubfs/Blog%20Images%20and%20Media/Can-vs-US-Inflation-Core-Jul-21-6.png)
CPI-U is for ‘All Urban Consumers, U.S. City Average’. A desirable rate of inflation is around +2.0% y/y.
Latest data points are for July, 2021. *NSA in the m/m change is ‘not seasonally adjusted’.
Chart: É«ÖÐÉ«.
![The Canadian 'All-items' index in July 2021 was +0.6% NSA* month to month.](https://www.constructconnect.com/hubfs/Blog%20Images%20and%20Media/Can-vs-US-Inflation-Core-Jul-21-7.png)
For a variety of reasons, there is a desirable rate of inflation and it’s around +2.0% y/y.
Latest data points are for July 2021. (*NSA in the m/m change is ‘not seasonally adjusted’.)
Chart: É«ÖÐÉ«.
Alex Carrick is Chief Economist for É«ÖÐÉ«. He has delivered presentations throughout North America on the U.S., Canadian and world construction outlooks. Mr. Carrick has been with the company since 1985. Links to his numerous articles are featured on Twitter , which has 50,000 followers.
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