Technical Notes

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62-001-XIB
Consumer Price Index
April 2002

Technical notes

Bullet Definition
Bullet Population coverage
Bullet Time reference
Bullet Percent versus index point changes
Bullet Price coverage
Bullet Weights and linking
Bullet Comparison of 1996 and 1992
Bullet Whitehorse and Yellowknife indexes
Bullet Calculation of city indexes
Bullet Seasonal adjustment


Definition Top of Page

The Consumer Price Index (CPI) is an indicator of the changes in consumer prices experienced by the target population. The CPI measures price change by comparing, through time, the cost of a fixed basket of commodities. This basket is based on the expenditures of the target population in a certain reference period, currently 1996. Since the basket contains commodities of unchanging or equivalent quantity and quality, the index reflects only pure price movements.

Separate CPI's are published for Canada, the ten provinces, Whitehorse and Yellowknife. Some CPI information is also available for an additional sixteen cities. Since the CPI is a measure of price change from one time period to another, it cannot be used to indicate differences in price levels between provinces or cities.


Population coverage Top of Page

The population targeted by the Consumer Price Index consists of families and individuals living in urban and rural private households. For practical reasons, residents of the Territories outside Whitehorse and Yellowknife are not represented by the index. Previous to February 1995, the target population consisted of private households in Canadian urban centres with a population of 30,000 or more.


Time reference Top of Page

The CPI compares, in percentage terms, prices in any given time period to prices in the official base period which, at present, is 1992=100. The official time base was changed from 1986=100 to 1992=100 starting with the CPI for February 1998. The change is strictly an arithmetic conversion which alters the index levels but leaves the percentage changes between any two periods intact, except for differences in rounding.


Percent versus index point changes Top of Page

The movements of the indexes from one month to another are expressed as percent changes rather than changes in index points. Index point changes are affected by the level of the index which, in turn, depends on the time base of the particular index. The percentage change between any two time periods can be readily calculated by dividing the index point difference between the two time periods by the index for the earlier period and multiplying the result by one hundred.


Price coverage Top of Page

The prices used in the CPI calculation are final prices, inclusive of excise and other indirect taxes paid by consumers. In particular, they include the Goods and Services Tax (GST), as well as provincial retail sales taxes wherever applicable. In regions where the GST and provincial retail sales taxes have been combined, the Harmonized Sales Tax (HST) is included. It follows that the CPI can change as a result of modifications to any of these taxes.

The selection of commodities and the outlets from which prices are collected is judgmental, other than for rents and traveler accommodation. The number of prices required for a given commodity depends on the importance and the nature of the commodity. The samples are designed to represent volume selling commodities and outlets. The principal objective of the sample design is to ensure an informative, reliable and impartial picture of consumer inflation at the national and provincial levels.

Price collection for a given month's index is carried out during the first three weeks of the month. Although prices for most CPI commodities are collected monthly, prices for commodities having less frequent price changes (e.g. property taxes and electricity rates) are collected at intervals longer than one month. Special pricings are carried out where there is evidence that significant price changes have occurred between scheduled pricing periods.


Weights and linking Top of Page

The CPI maintains fixed quantitative proportions (weights) between commodities during the life of a given basket. The baskets are updated periodically to take into account changes in consumer expenditure patterns. In February 1998, the basket reflecting the 1996 expenditure patterns replaced the 1992 basket. The continuity of the CPI series is maintained by "linking" the corresponding indexes obtained from consecutive baskets.

The CPI is calculated as a weighted average of specified commodity price indexes. The weights are derived from Family Expenditure Survey data. Text Table 1 compares the expenditure shares of the two most recent CPI baskets, i.e. those of 1996 and 1992. Because both sets of weights are expressed in December 1997 or "link month" prices, the differences reflect the shifts in the relative quantities purchased between the two baskets. The differences are a result of changes in consumer expenditure patterns over time and in the procedures used to obtain weights for "replacement cost" and "alcoholic beverages".

When reconstructing or re-aggregating published CPI series, the changes in weights and the linking procedures must be taken into account. For a description of the methodology required to reconstruct or re-aggregate CPI series, see the Consumer Price Index Reference Paper cat. 62-553 Occasional or contact Prices Division.


Comparison of the 1996 and 1992 Distribution1 of Expenditures used in the Consumer Price Index, by Major Component, for Canada Top of Page

1996 Expenditures

1992 Expenditures

 

Expressed
in 1996 prices

Expressed in
Dec. 1997 prices

Expressed in
Dec. 1997 prices

Major Components

 

 

 

 

All-items

100.0

100.0

100.0

 

 

 

 

Food

17.8

17.9

18.1

Shelter

27.1

26.8

26.9

Household operations and furnishings

10.7

10.8

10.1

Clothing and footwear

6.3

6.3

6.4

Transportation

18.6

19.0

19.1

Health and personal care

4.6

4.6

4.3

Recreation, education and reading

11.3

11.2

10.6

Alcoholic beverages and tobacco products

3.4

3.5

4.6

1 Figures may not add to 100% due to rounding

 

 


Whitehorse and Yellowknife indexes Top of Page

The relatively small size of the housing market in these two cities makes it difficult to construct reliable price indexes for new houses. To compensate, the price movements of rental accommodation are used to approximate the price movements of new houses. The rent information itself is collected using different pricing frequencies and collection methods than in the rest of the country. Because of these problems, the indexes for Rented Accommodation, Owned Accommodation and Shelter are not published for these two cities. Further, the All-items indexes published for these two cities are not strictly comparable with the same indexes for the provinces or the other sixteen urban centres.


Calculation of city indexes Top of Page

With the introduction of the 1992 basket, emphasis was shifted from city data to provincial data. City All-items series were continued since many users had come to rely on this service, but the method of calculation was changed. Shelter indexes are calculated for each city. This recognizes the importance of Shelter in the basket, the significant and persistent differences in price movements between cities, and the availability of local data. For the other seven major components, the movement of the provincial counterpart (or, in the cases of Montréal, Toronto, and Vancouver, a sub-provincial counterpart) is used. The major components are aggregated using the city's expenditure pattern to arrive at each city's All-items index.


Seasonal adjustment Top of Page

Seasonal adjustment is performed within each basket at the level of the eight major components. The seasonally adjusted All-items series is a weighted average of the eight seasonally adjusted major components. It was linked in December 1997 with the seasonally adjusted series calculated before then to form a continuous series starting in September 1978. Each month's data is fixed until the end of the year when the series is revised. Because the revision can lead to changes in both the levels and movements of the indexes, users employing the CPI for indexation purposes are advised to use the unadjusted indexes.



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