The CPI in Canada, or consumer price index, isn’t an especially difficult concept to understand, but we hear much more talk about inflation than we do CPI. And this can get confusing.
There’s plenty of media discussion around how Canada’s inflation rate fluctuates (mostly upwards these days, it seems), but not as much talk about CPI or the cost of the individual items in the “shopping basket.”
No idea what we’re talking about? You’re not alone!
What follows is an in-depth look at what CPI is, what goes into its calculation, how it’s related to inflation, and more.
Knowledge is power, so let’s dig in.
The basics of CPI in Canada – definition and examples
First and foremost, CPI stands for Consumer Price Index. It’s a way of measuring the effect of inflation on the country’s economy by tracking how much the average household in Canada spends and how this amount changes over time.
The government’s “Consumer price index portal” states that CPI is measured by comparing the cost of goods and services as they change over time.
Think of CPI as a shopping basket
Perhaps the easiest way to understand the concept of CPI is to visualize a shopping basket filled with products and services. Just like when you’re at the grocery store, each item in the shopping cart has an individual price and when you check out, there’s an overall total.
With the CPI shopping basket, each product or service has an individual cost that contributes to the end total.
And, as you’ve probably noticed while grocery shopping, the individual items in the basket will change in price from time to time – usually the prices go up, but occasionally there might be a bit of a downswing.
There are 8 components to the CPI basket, with each one containing various goods and services. Take a look:
| Component | Examples |
|---|---|
| Food | * Groceries * Restaurant meals |
| Shelter | * Rent * Mortgage payments * Home insurance * Repairs and maintenance * Utilities * Taxes |
| Household operations | * Phone bills * Internet * Child care * Cleaning supplies |
| Clothing and footwear | * Clothes * Shoes * Coats and outerwear * Jewellery * Dry cleaning |
| Transportation | * Car payments * Gas * Car insurance * Repairs and maintenance * Public transit costs |
| Health and personal care | * Prescriptions * Dental care * Vision care * Haircuts * Toiletries |
| Recreation, education, reading | * Sports fees and equipment * Travel * School fees and supplies * Books, magazines, newspapers |
| Alcoholic beverages, tobacco products, recreational cannabis | * Beer and liquor purchases * Cigarettes and cigars * Vapes * Cannabis products |
Stats Canada doesn’t actually specify how many people are in the “average Canadian household” on which this basket is based, unfortunately. However, GlobalData informs us on its Total Households in Canada page that the average size of a household in Canada was about 2.5 people in 2021.
And so we can assume that the CPI shopping basket is based on how a household of 2 or 3 people shops.
And since there are areas where families spend more money than others, each item in the basket is given a certain amount of weight. We tend to spend more on food and shelter, for instance, so, naturally, these areas carry more weight than, say, personal care products.
Therefore, when prices for heavier-weighted items – such as rent and/or mortgage payments – go up, it’ll have more of an effect on a household’s cost of living than if the cost of shampoo and/or soap went up.
Oh, and CPI does take sales tax into account, but things like income tax and the prices of investments (stocks, bonds, mutual funds, etc) aren’t included.
How to calculate CPI
The CPI in Canada is calculated by tracking how the prices of the items in the “basket” change. There’s a formula used to figure out the annual consumer price index, and for 2022 it would look like this:
Annual CPI = ((Value of basket in 2022 / Value of basket in 2021) – 1) x 100
So, if we take a fictional basked from the years 2021 and 2022 with respective values of $200 and $170, the calculations would look like this:
CPI = ((200 / 170) – 1) x 100
CPI = 17.6%
The same formula can be used to determine the monthly CPI, we just replace the annual value with the monthly value, like so:
Monthly CPI = ((Cost of basket in June 2022 / Cost of basket in May 2022) – 1) x 100
Since we can’t measure CPI for the current year until the year is over, month-over-month CPI is what you’ll see mentioned most often in economic and business reports – we’ve got an example of this coming up.
What is the current CPI in Canada?
The latest numbers show that the October 2022 consumer price index Canada was up 6.9% from last year.
The table below shows how Canadians’ spending on the specific basket items changed from October of 2021 to October of 2022. The final column shows the precise percentage of change from year to year.
| Product group | October 2021 price | October 2022 price | Change from 2021 to 2022 |
|---|---|---|---|
| All-items | 143.9 | 153.8 | 6.9% |
| Food | 159.2 | 175.2 | 10.1% |
| Shelter | 155.4 | 166.2 | 6.9% |
| Household operations, furnishings and equipment | 126.5 | 132.9 | 5.1% |
| Clothing and footwear | 96 | 97.7 | 1.8% |
| Transportation | 155.4 | 170.1 | 9.5% |
| Gasoline | 211.1 | 248.6 | 17.8% |
| Health and personal care | 133.9 | 140.4 | 4.9% |
| Recreation, education and reading | 120.1 | 125 | 4.1% |
| Alcoholic beverages, tobacco products and recreational cannabis | 176.2 | 183.5 | 4.1% |
| All-items excluding food and energy | 136.8 | 144.1 | 5.3% |
| All-items excluding energy | 140.7 | 149.4 | 6.2% |
| Energy | 187.5 | 217.9 | 16.2% |
| Goods | 130.9 | 141.9 | 8.4% |
| Services | 156.7 | 165.2 | 5.4% |
This likely won’t come as a surprise to anyone, but the increase in price is especially notable for the following categories:
- Transportation,
- Gasoline,
- Energy, and
- Goods.
Really, the discussion throughout Canada in all households for the last year has centred around the frustrating spikes in prices for food, gas, and home heating. So it’s not really a terrible shock to see the figures above.
To put things in an even wider perspective, let’s compare pre-pandemic shopping basket prices to now.
| Product group | January 2020 price | October 2022 price | Change from Jan 2020 to Oct 2022 |
|---|---|---|---|
| All-items | 136.8 | 153.8 | 12.4% |
| Food | 153.5 | 175.2 | 14.1% |
| Shelter | 146.4 | 166.2 | 13.5% |
| Household operations, furnishings and equipment | 122.6 | 132.9 | 8.4% |
| Clothing and footwear | 95.8 | 97.7 | 2.0% |
| Transportation | 143.4 | 170.1 | 18.6% |
| Gasoline | 166.4 | 248.6 | 49.4% |
| Health and personal care | 128.6 | 140.4 | 9.2% |
| Recreation, education and reading | 113 | 125 | 10.6% |
| Alcoholic beverages, tobacco products and recreational cannabis | 171.4 | 183.5 | 7.1% |
| All-items excluding food and energy | 131 | 144.1 | 10.0% |
| All-items excluding energy | 134.9 | 149.4 | 10.7% |
| Energy | 158.6 | 217.9 | 37.4% |
| Goods | 123.7 | 141.9 | 14.7% |
| Services | 149.7 | 165.2 | 10.4% |
Seeing that Gas has gone up essentially by 50% and Energy by 37% since January 2020 is mind-boggling – although not entirely difficult to understand.
The sickness – and even death – caused by COVID-19 was far, far reaching and had a definite, obvious effect on staffing and employment rates around the world. Which, in turn, had effects on the production, distribution, and overall availability of, well, everything.
Oh, and we can’t ignore the toll the Russian-Ukrainian war has had on the economy, particularly the import/export restrictions that have resulted from it. This has most definitely had an effect on our gas and fuel prices.
Now, for a different, more immediate perspective, take a look at how our CPI shopping basket has changed month-over-month throughout the last year.
You can see that the highest percentage of price changes occurred in March and May, and by a large margin. Likely not coincidentally, it was at the end of February when Russia invaded Ukraine, and May saw a huge rise in gas prices.
With this information presented in this format, it’s easy to see which months were the hardest overall. But if you want to look at the specific areas that contributed to these larger fluctuations, a different type of chart will be more helpful.
Below, we compare 3 CPI basket components that saw the biggest price increases between April and May 2022: food, gas, and energy.
The difference between how much all items rose versus just the price of gas is astounding. And the difference between all items and energy prices isn’t much better.
This offers an example of how CPI can be misleading. By definition, CPI measures the average change in prices, but in order to fully understand how the cost of products and services you regularly pay for have changed, you need to look more closely at the individual parts of the basket. This way, you’re able to pinpoint how these changes are affecting you and your household directly.
And you can look at these details yourself at any time by using Statistics Canada’s customizable table of the Consumer Price Index.
CPI affects our lives in a variety of ways
It doesn’t take a masters degree in economics to understand that when CPI is up and you’re forced to spend more money in one area of household budgetyour household budget, it can have a direct effect on other areas of that same budget.
The thing is, it’s not just YOUR budget that’s being affected by CPI.
Nor is it only your BUDGET that’s being affected.
The consumer price index affects many, many areas of society and economics. Here are a few examples.
Employers use CPI information
The consumer price index is directly related to inflation, which we’ll talk about a bit more later. And you know what employers take into consideration when setting wages and salaries? Yes, inflation – and, therefore, CPI.
When setting wages, employers look at the overall cost of living in the area where they operate, and CPI can be a tool they use to gauge whether these costs have gone up or down in recent times. The CPI can also show differences between different areas of the country, which can be a consideration for employers with staff in multiple locations.
Provincial governments also use CPI info when determining what the minimum wage should be.
How landlords use CPI info
Despite what many people may think of their landlords, as a general rule, they do want to charge renters a fair price.
Landlords may look at trends in housing costs in a specific area, and CPI goes hand-in-hand with this. After all, “Shelter” is one of the weighted categories in the CPI shopping basket.
By noticing trends in both the monthly and annual CPI reports, landlords can have a better idea of how the cost of living will change within a given time period, which can help them determine an appropriate fee for tenants occupying their rental units.
The most important way we use CPI: To study inflation
The concepts of inflation and CPI are very closely and inextricably linked. Inflation measures the value of our currency. CPI measures the effects of inflation on our spending.
It’s that simple.
How does it measure inflation? Why, there’s a formula, of course!
Inflation rate = (Current CPI – Previous CPI) / Previous CPI x 100
Let’s say we want to determine the inflation rate between 1995 and 2000. We’ll use $600 as the CPI in 1995 and $850 as the CPI in 2000.
Inflation rate = (850 – 600) / 600 x 100
Inflation rate = 43.33%
Really, inflation is the percentage increase – or decrease, as the case may be – over a specific period of time. Because of this, many people will use the terms “CPI” and “inflation” interchangeably.
Still don’t fully understand how inflation works? Read our in-depth look at the topic of inflation here.
Inflation, CPI, and mortgage rates
We’ve covered how CPI Canada can affect rental prices, and you might be wondering if it also affects mortgage rates. The answer is yes…sort of. Mortgage rates are related to CPI, though in a different way – kind of the opposite of how rent is related to CPI.
Each bank sets its own mortgage rates, but they base these on the prime rate, which is based on the benchmark interest rate set by the Bank of Canada.
What makes that benchmark interest rate change? Inflation.
And you know what measures how inflation affects our spending? Yup, it’s the consumer price index.
As you can see, mortgage rates are affected by CPI in a very roundabout way, but the connection is obviously there.
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$250 GeniusCash + Get the best mortgage rate with your personal advisor + Easily close online.FAQ
What does “consumer price index” mean?
The consumer price index, or CPI, is a number that represents the effect inflation has on the country’s economy. Or, in other words, it tracks how much Canadian households spend on their most basic and important goods and services.
Does CPI measure inflation?
While CPI doesn’t technically measure inflation, the 2 concepts are very closely related. CPI is more concerned with measuring the effects of inflation on the average Canadian household’s spending, rather than measuring inflation itself.
What’s the consumer price index 2022?
The consumer price index is at an average of 141.6 for the 2021 year. At the time of writing (December 9, 2022), the annual CPI for 2022 hasn’t yet been released. However, we can say that CPI for October 2022 is up 6.9% from the previous year.
Can you tell me how to calculate CPI?
To calculate CPI, you can use a formula that uses the value of the goods and services based on the current year/month versus the previous year/month. For more details on this CPI formula and how it works, read here.
Is there a CPI calculator?
There don’t seem to be any CPI calculators available online, however there are plenty of inflation calculators available.
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