Old Age Security Amounts and the Consumer Price Index

Old Age Security (OAS) rate increases are legislated under the Old Age Security Act. They are calculated four times a year (January, April, July and October) using the All-Items Index from the Consumer Price Index (CPI) 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. The CPI in January 2018 was measured at 131.7, meaning that the same basket of goods that cost $100.00 in 2002 cost $131.70 in January 2018.

OAS Amounts

The payment amounts for Old Age Security, Guaranteed Income Supplement, Allowance and Allowance for the Survivor are reviewed in January, April, July and October. This helps reduce the effect of sharp changes in the CPI and allows for faster adjustment of OAS benefit amounts due to cost of living increases.

The percentage increase is the percentage change between the average of the most recent 3-month CPI period and that of the last 3-month CPI period in which OAS amounts increased. If the cost of living has decreased over the most recent 3-month CPI period, the calculation of the rate change will produce a negative amount.

However, as prescribed under Old Age Security Act benefit amounts do not decrease; they stay at the same level when there is a decrease in the cost of living. The highest 3-month average CPI remains the reference level until the most recent average CPI climbs above that of the reference level.

As an example, indexation for the July to September 2018 period was calculated by comparing the average CPI for the February, March and April 2018 period to the average CPI for the November 2017, December 2017 and January 2018 period, which is the last period in which OAS benefit amounts increased. The most recent 3-month average exceeded the latter 3-month average, resulting in an increase of 1.2% to the OAS benefit amounts this quarter.

July to September 2018 CPI Indexation Calculations
CPI Indexation Calculations: description follows
Text description of July to September 2018 CPI Indexation Calculations

Line 1: To calculate the July 2018 quarterly OAS rates increase, the average CPI for February, March and April 2018 is divided by the average CPI for November 2017, December 2017 and January 2018.

Line 2: The average of 132.5, 132.9 and 133.3 is divided by the average of 131.3, 130.8 and 131.7.

Line 3: In numeric terms, 132.5, 132.9 and 133.3 is averaged to 132.9. This amount is then divided by the average of 131.3, 130.8 and 131.7 which is 131.3.

Line 4: 132.9 divided by 131.3 equals 1.012 minus 1 equals 0.012. Multiplying by 100 to obtain the percentage increase gives 1.2%.

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