Canada Pension Plan amounts and the Consumer price index
Canada Pension Plan (CPP) rate increases are calculated once a year using the Consumer price index (CPI) All-Items Index. They come into effect each January. These increases are legislated under the Canada Pension Plan so that benefits keep up with the cost of living.
Consumer price index
Developed by Statistics Canada, the CPI is a measure of the rate of price change for goods and services bought by Canadian consumers. It is the most widely used indicator of price changes in Canada.
The CPI is obtained by comparing, through time, the cost of a fixed basket of commodities purchased by Canadian consumers. Since the basket contains commodities of unchanging or equivalent quantity and quality, the index reflects only pure price movements. This "basket" of goods consists of food, shelter, clothing, transportation, health care and other average household expenditures.
Statistics Canada is currently using 2002 as the base year. In 2002, the CPI was equal to 100. This means that the basket of goods in 2002 cost Canadians $100.00. The CPI in January 2020 was measured at 136.8, meaning that the same basket of goods that cost $100.00 in 2002 cost $136.80 in January 2020.
CPP amounts are adjusted once a year in January. The rate increase is the percentage change from one 12-month period to the previous 12-month period.
For example, these equations show how the CPI was used to calculate the CPP amounts for January 1, 2021:
2021 CPP rate increase
Figure 1: text description
Line 1: To calculate the 2021 CPP rates increase, the average CPI for November 2019 to October 2020 is divided by the average CPI for November 2018 to October 2019.
Line 2: The average of 136.4, 136.4, 136.8, 137.4, 136.6, 135.7, 136.1, 137.2, 137.2, 137.0, 136.9, and 137.5 is divided by the average of 133.5, 133.4, 133.6, 134.5, 135.4, 136.0, 136.6, 136.3, 137.0, 136.8, 136.2, and 136.6.
Line 3: In numeric terms, the average CPI for November 2019 to October 2020 is 136.8. This amount is then divided by the average CPI for November 2018 to October 2019, which equals 135.5.
Line 4: 136.8 divided by 135.5 equals 1.010 minus 1 equals 0.010. Multiplying by 100 to obtain the percentage increase gives 1.0%.
If the cost of living decreased over the 12-month period, the calculation of the percentage increase would produce a negative amount. However, as prescribed under the Canada Pension Plan Act benefit amounts do not decrease, they stay at the same level when there is a decrease in the cost of living.
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