The Canadian government uses an inflation measurement called the Consumers Price Index (CPI), calculated by Statistics Canada. A simple average of prices in Canada doesn’t accurately represent how the average Canadian spends money or how that modifies their purchasing power. 1
The Bank of Canada defines inflation as “a persistent rise in the average level of prices over time.” Indeed, during the pandemic, the cost of buying a home rose astronomically, directly affecting inflation. The cost of shelter — one of the costs of living considered in the CPI — rose quickly, with houses doubling and even tripling in real estate value — which has had a domino price on rental costs across Canada.
How CPI is calculated
StatCan measures inflation by recording price changes in a curated selection of consumer goods and services.
The Consumer Price Index (CPI) represents changes in prices as experienced by Canadian consumers. It measures price change by comparing, through time, the cost of a fixed basket of goods and services.
CPI data are published at various levels of geography, including Canada, the ten provinces, Whitehorse, Yellowknife and Iqaluit, and select cities. This basket of goods and services is currently divided into eight major components:
- Household operations, furnishings, and equipment
- Clothing and footwear
- Health and personal care
- Recreation, education, and reading
- Alcoholic beverages, tobacco products, and recreational cannabis
The Consumer Price Index is one of the most widely used measures of inflation. The All-items CPI and its sub-aggregates can be used to calculate the price change between periods, the most commonly used calculation being the 12-month % change. 2
Data users who rely on the CPI for indexation purposes are advised to use this indicator as it reflects actual price movements observed during a given period.
Is the CPI a cost of living index?
The Consumer Price Index (CPI) is not equivalent to a cost-of-living index (COLI). The CPI has often been used to approximate cost-of-living, but it is important to note that the CPI and COLI are not directly comparable.
The CPI is based on a fixed basket of goods and services, representing the average Canadian household’s spending habits. The CPI measures the average change in retail prices encountered by all consumers in Canada.
By contrast, the objective of a COLI is to measure price changes experienced by consumers in maintaining a constant standard of living. A COLI can be linked to the minimum amount of money necessary in different periods to ensure a given level of “well-being”.
In short, the CPI measures the change in the cost of a fixed basket of goods and services, whereas a COLI measures the difference in the price of a specified level of “well-being”. 3