A few days ago, one of my readers, Patricia, sent me this question.

I thought that was a great question because I hear it all the time.

If inflation is only around 2%, why does it still feel like your wallet is getting hammered every time you go to the grocery store?

The answer is actually pretty simple.

Inflation measures how fast prices are rising.

It doesn't measure whether prices are high.

Here's an example.

Let's say your weekly grocery bill was $100.

Then the next year it jumped to $120.

That's a 20% increase.

Now imagine this year it goes from $120 to $122.

Inflation is only about 1.7%.

Sounds great, right?

Except you're still paying $122.

The price never went back to $100.

It just stopped rising as quickly.

That's why you can hear economists say, "Inflation is back to normal," while you're standing in the grocery store wondering why everything still costs so much.

Both things can be true.

There's also another reason the official inflation number doesn't always match what you're feeling.

It's because everyone has their own version of inflation.

Statistics Canada doesn't just track groceries.

It tracks hundreds of different products and services to calculate the Consumer Price Index.

Some things have barely changed in price.

Some have actually become cheaper.

Others like groceries, rent, insurance, and mortgage costs, have gone up much faster.

Those all get averaged together to produce one national inflation number.

But think about your own budget.

If half your paycheque goes toward housing, food, insurance, and gas, those are probably the prices you notice the most.

You probably aren't buying a new TV every month.

Or flying somewhere every weekend.

So your personal inflation rate can feel much higher than the national average.

That's one of the biggest misunderstandings about inflation.

The official number describes the average Canadian economy.

It doesn't describe your household.

At the same time lower inflation is still a good thing.

It gives wages a chance to catch up.

It also makes it easier for the Bank of Canada to lower interest rates over time if inflation stays under control.

But it doesn't erase the price increases we've already lived through.

That's why so many Canadians still feel squeezed even though inflation is much lower than it was in 2022.

So Patricia, thanks for asking the question.

I have a feeling you weren't the only one wondering.

Until next time,

Dean

P.S. I'm going to make this a regular feature called Canada Explained, where I answer questions sent in by readers.

What's something about Canada, the economy, taxes, or government that you've always wondered? Hit reply. Your question might be featured in a future newsletter.