An indicator of consumer price fluctuations
over a period of time. The CPI is based on a
basket of goods and services and associated
prices that Canadians must pay for these
goods and services. The basket consistently
reflects equivalent quantity and quality
and, as a result, the CPI measures true
price movements. The CPI is generally
regarded as a reliable measure of purchasing
power, i.e., inflation (when the purchasing
power of the dollar decreases) or deflation
(when the purchasing power of the dollar
increases).
Investors commonly
encounter the CPI in relation to commercial
tenancy agreements in which rents are geared
to CPI fluctuations over part or all of the
lease term. However, the index has
far-reaching applications for Canadian
society involving such items as spousal and
child support payments, Old Age Security
pensions, Canada Pension Plan payments, and
cost-of-living increases for labour
contracts, often referred to as COLA
(cost-of-living adjustment ) clauses.
Components/Weightings
Canadians are most familiar with the
all-items CPI that is regularly published in
the media. This index is based on selected
components and each component has a relative
weighting of importance in making up the
index.
Household operations and
furnishings 10.0%
Shelter 27.9%
Food 18.0%
Alcoholic beverages and
tobacco products 4.5%
Recreation, education, and
reading 10.4%
Health and personal care
4.3%
Transportation 18.3%
Clothing and footwear 6.6%
Six hundred goods and services are tracked
within these overall components. Each item
is weighted based on its relative
importance. The weighting used reflects the
impact that a price fluctuation in a
particular item would have upon the average
consumer budget. For example, an increase in
gasoline prices would have greater impact
than a corresponding rise in tea prices, as
most families are impacted more by the
former than the latter. The combined
weighting of all goods and services within a
component is totalled for the overall
weighting of that component. The current set
of weightings represent household
expenditures for 1992.
Scope of Indexes
The primary all items CPI is complemented by
a range of sub-indexes. For example, each
component has a corresponding index, e.g.,
transportation, shelter, and clothing. These
in turn are broken into small groups made up
of selected, similar products or services
within the overall component, e.g., grouping
of dairy products, childrens’ footwear, and
specific tobacco products. In fact, the
entire range of 600 goods and services is
grouped under an elaborate classification
system with the lowest level having 182
basic classes (products or services that
have common end-uses or are viewed as
substitutes for one another) and
progressively consolidating to the eight
major component classes.
Time Base
The current CPIs are time-based using the
year 1986. In other words, the CPI for 1986
is 100 and all subsequent years are compared
with that base year. If, for example, the
current all-items CPI is 131.5, this means
that consumer prices are 31.5% higher than
in 1986. The time base is updated
periodically by Statistics Canada.
Publication
The CPI is normally published by Statistics
Canada in the third week of the following
month. As already referenced, a wide array
of sub-indexes are provided including major
components right through to specific goods
and services in basic classes. The CPIS are
published for Canada, the ten provinces, the
territories, and 16 major centers across the
country.
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