Why 'Low Inflation' Does Not Mean Lower Prices

22 hours ago
3 min read

If you feel like your paycheck isn't stretching as far as it used to, you aren't imagining it. Statistics Canada just released the Annual Average Consumer Price Index (CPI) for 2025, and the number is 164.2.

While a three-digit decimal might look like dry economic data, it is actually a precise measurement of your declining purchasing power. Here is what that number really means for your wallet.

The "2002 Reality Check"

To understand 164.2, you have to look back to 2002—the "base year" for Canada’s inflation math.

The Index Baseline: StatCan sets the price of a standard "basket" of goods and services in 2002 at exactly 100.0.
The 2025 Reality: An index of 164.2 means that same basket now costs $164.20.
The Cumulative Hit: In simpler terms, life in Canada has become 64.2% more expensive since 2002.

Why the 2.1% "Win" Is Not A Win

The report also highlights a 2.1% annual change. On paper, this is good news—it means inflation is cooling toward the Bank of Canada’s 2% target.

However, "lower inflation" does not mean prices are going down; it just means they are rising more slowly. Even with this 2.1% ease, prices remain at historic highs, having surged nearly 20% over the last five years alone.

The Compounding Effect

To get from a base of 100.0 in 2002 to 164.2 today, we didn't have one big "64% spike". Instead, we had 23 years of compounding price movements.

For example, the massive 6.8% jump in 2022 didn't just affect 2022 prices; it permanently raised the "floor" for every inflation calculation that followed in 2023, 2024, and 2025.
This is why your "real" rate of return on investments must always be calculated by subtracting the inflation rate from your nominal gains. If your portfolio grows by 5% but inflation is 3%, your actual purchasing power only grew by 2%.

Winners and Losers in the 2025 Basket

Inflation doesn't hit every aisle of the grocery store equally. In 2025, we saw a massive divergence in what was driving that 164.2 index:

The Grocery Struggle: Prices for meat rose 5.8%, and coffee skyrocketed by 20.3%. Adverse weather and trade tariffs have made your morning brew a luxury item.
The Shelter Squeeze: While rent growth slowed slightly, it still rose 5.0% in 2025. Since 2020, national rent prices have jumped a staggering 28.5%.
The Gasoline Relief: One of the few downward pressures was energy, with gasoline prices falling 8.6%, largely due to the removal of the federal carbon price in April 2025.

What This Means for Your Financial Plan

As a Canadian resident, this index value is the "master key" for your financial life:

Wage Negotiations: If your salary hasn't increased by at least ~2% in the last year, you have effectively taken a pay cut in real terms.
Investment Strategy: To grow wealth, your portfolio must outpace the CPI. Any return below 2.1% is technically a loss of purchasing power.
Contract Indexation: Many CPP benefits, private pensions, and even spousal support payments are already tied to this 164.2 average to ensure they keep up with the cost of living.

The Bottom Line

Inflation is a silent thief that compounds daily. A 2.1% annual increase doesn't just mean things cost more this year; it means every dollar you've saved is losing a piece of its future power. If your assets aren't outperforming the CPI, you aren't standing still—you’re falling behind.

You cannot control the national index, but you can control your exposure. Whether it’s through strategic real estate in Winnipeg, ETF investments on the Toronto Stock Exchange, or aggressive tax-sheltering in your FHSA, your goal must be to build a financial wall faster than inflation can tear it down. The 164.2 index is a warning—make sure your wealth is built to survive the climb.

Reach out to review your current investment strategy to safeguard your future from the creeping effects of inflation. You can also read some related blogs on financial planning, managing finance and canadian financial realities.

If you want to learn and apply practical wealth building strategies in 2026, Let’s Talk. I help clients across Canada build sustainable financial plans rooted in clarity and confidence.