Inflation: what the CPI measures and what it changes for you

What is inflation?

Inflation measures how fast the general level of prices for goods and services rises over a period of time. In Canada, it is calculated with the consumer price index (CPI), published every month by Statistics Canada.

The number you hear in the news is the 12-month change: the CPI of one month is compared with the same month a year earlier. See the latest figure and its history.

The CPI basket

• Statistics Canada tracks the prices of a basket of about 700 common goods and services.
• Each item counts according to the share of the budget the average household spends on it: food and shelter count more than, for example, personal care.
• The basket is updated regularly to follow changes in spending habits.
• Shelter includes property taxes and home insurance, among others, but not the purchase price of a home, which is considered an asset.

When inflation slows, prices do not go down

Lower inflation means prices are rising more slowly, not that they are falling. A general fall in prices has another name: deflation.

Your purchasing power

If your income rises more slowly than prices, a bigger share of your pay goes to buying the same things: your purchasing power falls. If it rises at the same pace, the increases cancel out.

Inflation affects savings too: money that sits idle loses value if it earns less than the rise in prices. See Real return: are your savings beating inflation?

The Bank of Canada's role

The Bank of Canada aims for inflation of 2%, the midpoint of a 1% to 3% range, and adjusts its policy interest rate to get there.

It also watches measures of “core” inflation, such as CPI-median and CPI-trim, which set aside the most extreme price moves to show the underlying trend.

What the CPI does not tell you

• It is an average: your own inflation depends on what you buy. A household that spends a large share of its budget on rent or groceries can feel a different increase.
• It can slightly overstate the rise in the cost of living, for example because people replace a product that became expensive with another one, or because new products enter the basket late.
• A large price change a year ago can make 12-month inflation look lower or higher than it really is today.

To see where your money goes each month and spot the expenses that are rising: