62-001-XIB
Consumer Price Index
December 2006

Table 12 shows consumer price differentials prevailing amongst 11 Canadian cities situated in all 10 provinces for a selection of commodities and services at the specified point in time.

Price data for the current inter-city retail price comparison was drawn to a large extent from the extensive volume of price information collected for the production of the Consumer Price Index (CPI) for October 2004. To obtain the October 2005 comparison, October 2004 prices for each product category, were adjusted using the CPI to reflect the price movements over the year ending in October 2005.

Reliable inter-city price comparisons require that the sampled commodities be identical in different locations. This ensures that variations in index levels between cities, are due to price differences and not to differences in product attributes. In order to optimize comparability, price comparisons were initially made by pairing cities that are geographically close. This resulted in the following pairings:

Within each city pair, price quotations were matched at the item level on the basis of identical detailed descriptions, including brand names whenever possible and also with some regard for comparability of retail outlets and merchandising practices.

Price level comparisons can be extended to include any pair of cities using a chaining procedure.

The weights used for aggregating the various components of the city indexes to obtain the All-items index are based on the expenditure proportions of the consumers living in the 11 cities overall. The weights are currently based on 1996 consumer expenditure data and price updated to October 2001. The base, for which the index is equal to 100, is also the combined city average. Therefore, an index value of 102 means that prices in that city are 2 percent higher than the combined city average.

It should be noted, especially in periods when prices are highly volatile, that the timing of price comparison and the relative rate of price change occurring in each location could significantly affect city-to-city retail price relationships. Furthermore, since the retail prices used in this study are final prices faced by consumers, they include applicable sales and excise taxes. Therefore, provincial sales tax rates in effect in the various cities at the time of price comparison can be of importance in explaining inter-city price differentials for items or groups of items that are subject to such taxes.

Shelter, as an expenditure category, was absent from the Inter-city index program prior to 1999 because of methodological and conceptual issues associated with its measurement. For many products, adjusting for quality differences to ensure comparability across areas is relatively straightforward and can be done using traditional quality adjustment techniques. In the case of shelter however, its very diverse nature means that comparable matches across cities are difficult to make. Hedonic regression methods were used to adjust for quality differences among cities and produce more reliable inter-city comparisons of rental prices.

A rental equivalence approach is used to construct the inter-city price indexes for shelter services consumed by homeowners. Such an approach uses market rents as an approximation of the cost of shelter services faced by homeowners. This approach may not be suitable for the needs of all users. For instance, since the rental equivalence approach does not represent an out-of-pocket expenditure, the indexes should not be used for measuring differences in the purchasing power of homeowners across cities. Furthermore, since the observed rents used in this index are those faced by existing renters and since the industry is regulated, they may not be indicative of rental prices faced by new renters.

Footnotes for Table 12

(2) The weights shown are rounded 1996 basket weights at December 1997 prices for Canada. They are provided for illustration only; the weights actually used are combined city weights with adjustments for price change since October 2001.

(3) Includes the following sub-groups: sugar and syrups, confectionery items, margarine, other edible fat and oil items, coffee, tea, condiments, spices and vinegar, soup, infant and junior foods, pre-cooked frozen food preparations, non-alcoholic beverages and all other food preparations.