Canada's updated CPI basket shows higher weighting for shelter

TORONTO, July 21 (Reuters) - Canada's national statistics agency on Wednesday revealed new weights for the basket of goods and services in the Consumer Price Index (CPI), with shifts including a higher weighting for the shelter component as housing prices soar.

The updated basket weights represent consumer spending patterns in 2020, during the coronavirus pandemic, and will be incorporated into June 2021 CPI, Statistics Canada said. The June data is due for release on July 28.

The CPI provides insight on inflation and is sometimes used to help determine wage increases. It also has implications for real return bonds, which compensate investors for changes in the index.

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Statscan created an alternate index to better reflect the impact of spending shifts due to the pandemic, and it has consistently tracked above official inflation. read more

The previous basket update was based on 2017 purchasing patterns.

Three of the eight major components saw unprecedented growth in their basket weights, the statistics agency said, led by shelter, already the highest-weighted major component, which grew to 29.78% as a share of the basket, from 26.92% in 2017.

Canadian home prices have surged during the pandemic.

The share of the household operations, furnishings and equipment component grew to 15.21% and alcoholic beverages, tobacco products and recreational cannabis was up at 4.86%.

Four of the major components declined in basket share, with the transportation component shrinking the most. It fell to 15.34% from 19.72%.

The updated weightings utilize alternative data sources, to help account for pandemic-related shifts in consumer spending.

Canada's annual inflation rate accelerated to 3.6% in May, its fastest pace in a decade, due in part to the statistical comparison to tanking prices last year. read more

The Bank of Canada targets inflation at 2%, with a 1%-3% control range. It expects inflation to ease back to the 2% target by 2022. read more

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Reporting by Fergal Smith; Editing by Bernadette Baum

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