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| DEFINITION |
The Consumer Price Index (CPI) is an indicator of
the consumer prices encountered by Canadians. It is obtained by calculating,
on a monthly basis, the cost of a fixed “basket” of commodities
purchased by a typical Canadian consumer during a given month. The basket
contains products from various categories, including shelter, food, entertainment,
fuel and transportation. Since the contents of the basket remain constant
in terms of quantity and quality, the changes in the index reflect price
changes. The CPI is a widely used indicator of inflation (or deflation)
and indicates the changing purchasing power of money in Canada.
Every month, the CPI measures the average change in retail prices encountered
by all consumers in Canada. It cannot, and should not, be expected to
reflect the price change experience of any particular household or person.
The “CPI basket” contains an extensive list of goods and services.
Each consumer buys a different combination of these goods and services,
and it would be unlikely for any consumer to buy everything on the list
at one point in time.
| HOW
DOES IT AFFECT CANADIANS? |
The CPI affects nearly all Canadians either directly or
indirectly. Old Age Security pensions, Canada Pension Plan payments and
other forms of social welfare payments are adjusted periodically based
on changes in the CPI. Rental agreements, spousal and child support payments
and other forms of contractual and price-setting arrangements often take
into consideration movements in the CPI. The labour contracts of many
Canadian workers include cost-of-living adjustment (COLA) clauses that
link wage increases to movements in the CPI.
| EXAMPLE |
In the early 1980s, rates of inflation rose to over
10% before restrictive monetary policy (high interest rates) brought prices
under control. In February 1991, the federal government and the Bank of
Canada introduced targets to reduce inflation to the midpoint of a range
of 1% to 3%. After these targets were introduced, inflation registered
some of the lowest levels in decades. In May 2001, the targets were extended
to the end of 2006.
| LINKS |
Latest release from the Consumer Price Index
Source: Statistics Canada
http://www.statcan.ca/english/Subjects/Cpi/cpi-en.htm
Consumer Price Index Information and statistics
Source: Bank of Canada
http://www.bank-banque-canada.ca/en/backgrounders/bg-i4.htm
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