Canada Pension Plan Rates and the Consumer Price Index 

Canada Pension Plan (CPP) rate increases are calculated once a year using the Consumer Price Index (CPI). They come into effect each January. These increases are legislated under the Canada Pension Plan Actso that benefits keep up with the cost of living.

Consumer Price Index

Statistics Canada developed the CPI to measure changes in the cost of living. The CPI tracks cost changes in common household expenses. This "basket" of goods consists of food, shelter, clothing, transportation, health care and other average household expenditures.

Statistics Canada is currently using 1992 as the base year. In 1992, the CPI was equal to 100. This means that the basket of goods in 1992 cost Canadians $100.00. The CPI in January 2003 was measured at 121.4, meaning that the same basket of goods that cost $100.00 in 1992 now costs $121.40.

CPP Rates

CPP rates are adjusted once a year using a 12-month "moving average method." The moving average method is used in statistics to reduce the effect of sharp changes in the CPI. 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 rate for January 1, 2006:

If the cost of living decreased over the 12-month period, the calculation of the rate increase would produce a negative amount. However, benefit rates do not decrease, so they stay at the same level when there is a decrease in the cost of living.

CPI increase compared to the CPP increase

The following table illustrates the changes in the cost of living compared to the changes in the CPP rates over a 10-year period. It shows that the CPI has increased by 19 percent over the 10-year period, using the 1992 base year. CPP rates have increased by 20 percent in the same period.

For further information regarding the CPI, please consult Statistic Canada's Your Guide to the Consumer Price Index - For this purpose, you will need Adobe Acrobat reader .