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 2017 was measured at 129.5, meaning that the same basket of goods that cost $100.00 in 2002 cost $129.50 in January 2017.

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 2017 period was calculated by comparing the average CPI for the February to April 2017 period to the average CPI for the May to July 2016 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 0.9% to the OAS benefit amounts this quarter.

The following shows how the CPI was used to calculate the OAS amounts for this period:

July to September 2017 CPI Indexation Calculations
CPI Indexation Calculations: description follows
Text description of July to September 2017 CPI Indexation Calculations

Line 1: To calculate the July 2017 quarterly OAS rates increase, the average CPI for February, March and April 2017 is divided by the average CPI for May, June and July 2016.

Line 2: The average of 129.7, 129.9 and 130.4 is divided by the average of 128.8, 129.1, and 128.9.

Line 3: In numeric terms, 129.7, 129.9 and 130.4 is averaged to 130.0. This amount is then divided by the average of 128.8, 129.1, and 128.9 which is 128.9.

Line 4: 130.0 divided by 128.9 equals 1.009 minus 1 equals 0.009. Multiplying by 100 to obtain the percentage increase gives 0.9%.

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