Exploring the first century of Canada's Consumer Price Index
Exploring the first century of Canada's Consumer Price Index
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- Early years: the Department of Labour and the Board of Inquiry into the Cost of Living
- The interwar years: the Dominion Bureau of Statistics
- The Second World War: a new Cost-of-Living Index
- Post-war era: 1946 to 1972
- Box 1: Indexation using the Consumer Price Index
- Stagflation years: 1973 to 1982
- Box 2: International cooperation and standards
- Late twentieth century: 1983 to 1999
- Box 3: Bias in the Consumer Price Index
- Twenty-first century changes
- The Consumer Price Index Enhancement Initiative
Exploring the First Century of Canada’s Consumer Price Index surveys the history of Statistics Canada’s Consumer Price Index (CPI) from its origins to today. The paper discusses changes in the construction, scope and uses of the CPI within the context of historical events.
This paper was written by Julie Charest and Julia White of the Consumer Prices Division of Statistics Canada. Amanda Wright provided key assistance in the preparation of this document. The authors thank George Bentley, Cyndi Bloskie, Monique Emond, Guy Gellatly, Michèle Lanoue, Mathieu Lequain, John Mallon, Bruno Morin, Daphney Pierre and Philip Smith for their contributions and comments. Thanks are also due to the staff at the Statistics Canada Library for their essential help in locating historical documents.
This publication was prepared under the direction of:
Director, Consumer Prices Division
Assistant Director, Production, Consumer Prices Division
Manager, Analysis and Dissemination, Consumer Prices Division
Analyst-Economist, Consumer Prices Division
Analyst-Economist, Consumer Prices Division
The Consumer Price Index (CPI) is one of the most important and influential economic indicators produced by Statistics Canada. It is used to track changes over time in the cost of a fixed basket of consumer goods and services. Since the basket contains products of unchanging or equivalent quantity and quality, the index reflects only pure price change.Note 1 The CPI is widely used in payment escalation, economic analysis and government policy decisions. As well, since price movements affect the purchasing power of money, consumers can monitor the CPI to evaluate changes in their financial situation.
With the release of the CPI for December 2014, Canada’s CPI series spans a century of history from 1914 to 2014. Over this time period, movements in the CPI have closely followed the dramatic highs and lows of the Canadian economy (Figure 1). This article tells the story of the CPI from the early twentieth century, when it began as a “Cost-of-Living Index” used to track the cost of workers’ necessities, to today, in its current form as a robust statistical measure of overall consumer price change.
The CPI basket has evolved over the last century as the range of goods and services available to consumers has expanded and as consumer spending habits have changed. In addition, the series has been continually improved in line with ongoing technical progress in price index theory and practice. The builders of Canada’s CPI have consistently sought to maintain an accurate, up-to-date price index series that meets the diverse needs of CPI users.
Early years: the Department of Labour and the Board of Inquiry into the Cost of Living
Canadians had a pressing need for a standard measure of consumer price change in the early twentieth century. The public and government were concerned because rapidly increasing prices for common goods and services were eroding purchasing power. At the time, uncertainty about the true magnitude of consumer price change made it a challenge for citizens and businesses to track their purchasing power and to plan for the future. In addition, disagreements between workers and firms about how to adjust wages to account for changes in the “cost of living” were a major source of labour unrest.Note 2
The federal Department of Labour was created in 1900 to, among other things, publish impartial economic statistics to aid in the resolution of labour disputes.Note 3 In 1910, the Department of Labour’s official publication, The Labour Gazette, began regularly publishing average retail prices for a basket of household necessities typically purchased by urban working families. The Labour Gazette correspondents collected the prices from retailers in 57 Canadian cities. The basket contained 29 food items, laundry starch, five kinds of household fuel and rent.Note 4 Price statistics were published as dollar values, not in the form of price indexes.
Just before the First World War, the Canadian federal government established the Board of Inquiry into the Cost of Living to document and investigate the ongoing increases in consumer prices.Note 5 The Board of Inquiry submitted a two-volume report in 1915, with the second volume entirely devoted to the findings of Board member Robert H. Coats, Chief of the Statistical Branch of the Department of Labour.
Importantly for the history of the CPI, the second volume of this report contained the first detailed price indexes produced in Canada.Note 6 Using data already collected for The Labour Gazette, Coats and his staff calculated annual price index values for the 36 items in The Gazette basket at the municipal, provincial and national levels. The report concluded that working families paid 38.2% more for a basket of necessities in 1913 than they had in 1900.Note 7
By the early 1920s, the Department of Labour was occasionally publishing a consumer price index (which they called the “Cost-of-Living Index”) using the same basket contents and methodology employed in the Board’s report.Note 8 This index series was published monthly in The Labour Gazette starting in 1927. Five major component indexes (food, fuel, rent, clothing and sundries) were averaged to produce an “All-items” index that measured the change in the total cost of the basket.
Today’s CPI is directly descended from the price statistics originally published in The Labour Gazette.
Figure 1 illustrates why Canadians were concerned about rising consumer prices before 1920: the highest annual average increase in the CPI time series was recorded in 1917 (+17.9%).Note 9 Over the four years of the First World War, the CPI rose 48.3%.
The interwar years: the Dominion Bureau of Statistics
With the passage of the Statistics Act of 1918, the federal government created the Dominion Bureau of Statistics (DBS), a central agency for collecting and analyzing official statistics, under the leadership of the aforementioned Robert H. Coats, who became Dominion Statistician. For some time after the establishment of the DBS, however, measuring movements in consumer prices remained the task of the Department of Labour.
The DBS first published its own consumer price index in 1927. Although this index drew on historical price data from the Department of Labour, it was different from the index published in The Labour Gazette.Note 10 Unlike the index produced by the Department of Labour, which was intended to measure price change faced by urban working households, the DBS index aimed to measure price change experienced by all Canadians. Therefore, the basket weights were based on estimated total Canadian consumption of each basket item in 1913.
The first set of DBS price indexes included annual indexes for food, fuel, lighting and rent for all provinces and eight cities.Note 11 To create this new index series, which covered the years from 1913 to 1927, the Bureau collected new price data directly from retailers in addition to using historical data from the Department of Labour.Note 12
In a time of rapid technological and social change, however, it soon became clear that consumer spending patterns from 1913 were no longer representative of current consumer spending habits. Consequently, in 1930 the DBS revealed its first major Cost-of-Living Index update. The updated basket weights were based on estimated total consumer expenditures for Canada in 1926.Note 13 The Bureau employed a process called “chain-linking” to maintain a continuous index series across the different baskets. Chain-linking continues to be used today whenever the CPI basket is updated.
The new basket greatly expanded the scope of the index. Dozens of goods and services were introduced into the index, including electricity, clothing, and a variety of “miscellaneous” items such as refrigerators, doctors’ fees, amusements and tobacco products. Tram fares and motor operating costs were also classified as “miscellaneous” and had a combined basket weight of less than 7.0%. Today, transportation is a major CPI component that accounts for almost 20.0% of the basket (Appendix 1).Note 14 The 1926 basket update set the blueprint for product classification and CPI scope going into the future (Appendix 2).
The prosperity of the 1920s ended with the onset of the Great Depression in 1929. Deflation (an overall decline in consumer prices) accompanied the severe economic hardship experienced by Canadians during this era. For example, 1931 marked the largest annual declines of the decade for both the CPI (-9.9%) and real gross domestic product (-10.6%) (Figures 1 and 2).
The Great Depression demonstrated how deflation can have negative effects on the economy. When consumer prices trend downward, consumers tend to postpone purchases because they expect prices to be lower in the future. This behaviour, in turn, depresses aggregate demand. Furthermore, since debt contracts are usually in nominal dollars, deflation causes the real value of debts to increase, making the burden on debtors increasingly onerous over time.
The Second World War: a new Cost-of-Living Index
With the start of the Second World War, the Canadian economy recovered from the Great Depression, producing weapons, manufactured goods and raw materials for the Allied war effort. Labour shortages became an issue instead of unemployment and Canada became a major exporter.Note 15 As consumers faced wartime shortages, rationing and higher prices for everyday purchases, the “cost of living” became a high-profile public issue.
In 1940, in cooperation with the Department of Labour and the Wartime Prices and Trade Board, the DBS released an updated Cost-of-Living Index, employing basket weights from a 1938-1939 consumer spending survey.Note 16,Note 17 This new index had important implications for large numbers of Canadians, since federal legislation entitled workers in certain industries (such as utilities, transportation and war production) to a cost-of-living bonus to be calculated with reference to the Bureau’s official Cost-of-Living Index.Note 18
Whereas previously the target population of the DBS price index had been Canada as a whole, the 1940 update redefined the target population as urban wage-earning families. After Bureau staff had studied the 1931 Census, it was decided that the new Cost-of-Living Index would represent price change experienced by families who:
- had husband and wife as joint heads with one to five children,
- were completely self-supporting, earning $450 to $2,500 during the survey year, and
- were living in self-contained dwelling units, not sharing kitchen or bathroom with other families.Note 19
Although the details changed with successive basket updates, the Bureau continued to define the CPI’s target population by characteristics such as family size and income until the 1970s.
The basket contents and weights were updated based on a consumer survey of 1,439 families who met the target population criteria. Firewood was removed from the fuel index because it no longer accounted for a significant part of families’ budgets, while items such as strawberry jam and vegetable shortening were added (Appendix 2).Note 20,Note 21 Products related to health, personal care, transportation and recreation remained in the miscellaneous index.
As the war progressed and the availability of consumer goods changed, the index had to be modified. For instance, by 1943 consumers could no longer purchase automobile tires and tubes, steel frying pans, silk stockings or bananas, so the basket weights of these items were reassigned to other goods in the index.Note 22 In addition, the weights of tea, sugar and motor operating costs were reduced to account for wartime rationing.Note 23 The Bureau collected the prices that consumers actually paid, even if retailers were charging prices above legislated price ceilings or if subsidies reduced prices for some products (such as tea, coffee, butter, milk and oranges).Note 24 These are examples of the careful measures the Bureau took to ensure the Cost-of-Living Index remained accurate and representative during the war.
Post-war era: 1946 to 1972
With the transition to a peacetime economy, production of civilian goods increased, consumer demand went up, and wartime price controls were gradually eliminated. At the same time, increases in consumer prices accelerated. In 1946, public concern about price increases led to the establishment of the Royal Canadian Commission on Prices, which was charged with the mandate of examining the recent causes of inflation, as well as investigating price increases in excess of costs and due to hoarding.Note 25 Annual average inflation reached its post-war peak of 14.6% in 1948, and consumer prices rose again with the start of the Korean War in 1950 (Figures 1 and 2).
The Dominion Bureau of Statistics kept pace with the changes of the period, unveiling a completely revised and updated consumer price index in 1952 with new weights derived from a 1948-49 consumer spending survey. The index name was changed from the “Cost-of-Living Index” to the more precisely defined “Consumer Price Index” (CPI). The new name better reflected the fact that the index measured changes in the cost of a fixed basket of goods and services, not changes in the cost of maintaining a certain standard of living.Note 26
Almost every aspect of the CPI was examined in detail for this update, including the fundamentals of index design, target population, basket contents and weighting scheme, price collection methods and calculation procedures.Note 27 For example, seasonal weights were introduced for food items in the CPI to reflect variations in the food-buying habits of Canadians throughout the year.Note 28 Also, the price sampling method adopted more specific descriptions for basket items, which allowed the DBS to more accurately distinguish pure price change from price movement due to quality changes.Note 29 Recognizing the need for more frequent CPI updates in this era of change, the Bureau made it a policy to conduct small-scale biennial surveys of consumer expenditures to monitor changing consumer spending patterns.
The 1948-49 CPI basket contained 224 items, almost 40.0% more items than the previous Cost-of-Living Index. Broader sampling allowed the Bureau to expand the basket to include children’s wear, more fresh fruits and vegetables, and almost twice as many transportation items.Note 30 Food products like margarine, cake mix, orange juice, chocolate bars and carbonated drinks were added to the basket. Other new items included fur coats, electric irons, lawnmowers, household help, taxi and bus fares, phonograph records and alcoholic beverages (Appendix 2).Note 31
The new CPI basket was the first to include the cost of owned accommodation in addition to rent (Appendix 2). Change in the cost of owned accommodation had previously been imputed from movements in the index for rented accommodation. The need to measure the changing costs of home ownership separately arose because consumers felt that home ownership costs were rising faster than rental costs. The CPI now included five categories of owned accommodation costs, namely property taxes, mortgage interest, repairs, homeowners’ replacement cost, and insurance.Note 32
The Bureau implemented the next CPI basket update in 1961, revising the weights to reflect expenditure data from the 1957 Urban Family Expenditure Survey. The previous basket’s miscellaneous index was replaced by four major components: transportation, health and personal care, recreation and reading, as well as tobacco and alcoholic beverages. Hospital rates were dropped from the CPI with the 1961 update, since newly introduced federal-provincial hospital care plans greatly reduced family expenditures for this item (Appendix 2).Note 33 In future years, more health care services would be removed from the CPI basket as government spending increasingly replaced consumer expenditures in this area.
The 1961 update marked the first time that previous index values were not revised, and a new no-revision policy, which remains in place today, was introduced. Prior to 1961, previously published indexes had been revised whenever the CPI basket was updated, using the new basket weights. Since the CPI is widely used in contracts for payment and wage escalations, the no-revision policy eliminated the need for CPI users to modify existing contracts or recalculate previous payments to account for CPI revisions (Box 1).
In the second half of the 1960s, the annual average rate of consumer price inflation was over 3.0% every year and rising. The highest inflation rate of the decade was recorded in 1969, when consumers paid 4.8% more than they had the previous year for their purchases (Figure 1). The increase in consumer prices was enough of a public issue for the federal government to create the Prices and Incomes Commission in 1969. Its general mandate was to investigate the causes and consequences of inflation, and to inform the private and public sectors on how to achieve price stability.Note 34
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Box 1: Indexation using the Consumer Price Index
The Consumer Price Index is often used to adjust incomes, wages or other payments in order to maintain purchasing power in the face of changing consumer prices. The practice of making periodic changes to payments using a built-in adjustment factor is known as “indexation.”
Important federal social programs are indexed to the CPI, affecting millions of Canadians. For example, annual cost-of-living indexation was introduced for Old Age Security (OAS) benefits in 1972. The following year, when inflation was very high (particularly for energy and food), the government introduced quarterly indexation to provide better protection against unexpected price increases throughout the year.Note 35 As well, Canada Pension Plan (CPP) benefits have been indexed to CPI increases on an annual basis since 1974.Note 36
Income tax brackets and basic exemptions have been indexed to the CPI since 1974. This measure ensures that Canadians are not taxed at higher rates due to increases in income that simply keep pace with inflation.Note 37
The CPI is widely used for indexation in the private sector, as well. For example, it is used to index financial contracts such as wage agreements, child support agreements, loans and rent contracts.
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Stagflation years: 1973 to 1982
In 1973, world oil prices spiked during the international oil embargo that accompanied the Arab-Israeli War (Figure 1).Note 38 Overall consumer prices in Canada rose 7.8% in 1973 compared with the previous year (Figures 1 and 3), reflecting a 7.0% increase in the price of gasoline, an 8.0% gain in electricity costs, and a 14.9% advance in food prices. These price increases initiated a stretch of years in which the annual average rate of consumer price inflation was well over 5.0% and usually closer to 10.0%. At the same time, economic growth slowed and unemployment was high. This phenomenon of high inflation combined with slow economic growth is called “stagflation” (Figure 3).
In 1973, Statistics Canada (the Bureau’s name from 1971 onwards) updated the CPI basket in accordance with the 1967 Urban Family Expenditure Survey. Highlights of this CPI update included the introduction of price indexes for home ownership at the city level, as well as the re-introduction of annual weights for food items, replacing the seasonal weights that had been employed since 1952.Note 39
Widespread concern about high consumer price inflation led the federal government to create the Anti-Inflation Board (AIB) in 1975. Until 1978, the AIB monitored movements in prices and wages, and had the legal power to regulate the price and wage decisions of large businesses, with the aim of restraining inflation.Note 40
In 1975, Statistics Canada began publishing seasonally adjusted CPI series on an annual basis. Eventually, as statistical software became more sophisticated, seasonally adjusted indexes were produced on a monthly basis.Note 41,Note 42
With the next CPI basket update in 1978 (based on 1974 expenditure weights), the target population was significantly broadened to include all families and unattached individuals in urban centres of more than 30,000 people. For the first time since 1940, family size and income were not used to define the target population. This modification was partly motivated by demographic change, but also by the increasingly extensive application of the CPI.Note 43 By the 1970s, the CPI was used as a broad indicator of inflation, an escalation and bargaining tool in wage contracts, an indexation tool for government transfer payments (Box 1), and a deflator of monetary values expressed in current dollars. Therefore, it had become important that the CPI reflect overall consumer price change, rather than price change experienced by a subset of households.Note 44
Several technical improvements accompanied the implementation of the 1974 basket weights. Statistics Canada adopted a “matrix concept” of CPI calculation, in which the Canada-level indexes were calculated as a weighted average of the indexes for 59 urban centres.Note 45 The price sample was expanded to include many new items (Appendix 2) and to cover a broader geography.Note 46 In a major step forward, an automated data processing system was introduced with this update, permitting more speed and flexibility in index calculations and analysis.Note 47
The Iran-Iraq War broke out in 1979, leading to steep increases in world oil prices.Note 48 In 1980, consumers paid 10.0% more on an annual average basis for goods and services, while gasoline prices rose 19.1% (Figures 1 and 3). In response, in 1980, the federal government implemented the National Energy Program, which imposed price ceilings on domestically produced oil.Note 49
Annual average CPI inflation reached a 33-year high of 12.5% in 1981 (Figures 1 and 3), as prices for gasoline (+36.1%), natural gas (+27.3%) and fuel oil (+43.6%) rose further. Prices for food purchased from stores were 12.0% higher in 1981 than in the previous year, while only a few items with relatively small basket weights, such as apples and coffee, declined in price.
In response to higher inflation rates and faster changes in relative prices, when the CPI basket was updated in 1982 to incorporate 1978 expenditure weights, Statistics Canada implemented a new policy of updating the CPI basket every four years. The updates were tied to the four-year cycle of Statistics Canada’s Family Expenditure Survey.Note 50
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Box 2: International cooperation and standards
Internationally, the Consumer Price Index is one of the most widely used statistics for measuring price change and economic performance. For decades, Statistics Canada has been actively involved with international organizations dedicated to improving and standardizing CPI methodology, such as the International Labour Organization (ILO) and the International Monetary Fund (IMF).
Statistics Canada CPI staff confer annually with the agency’s Price Measurement Advisory Committee (PMAC), an external, independent panel of Canadian and international experts in price measurement. The Advisory Committee provides advice on conceptual topics related to price indexes as well as feedback on projects and changes in the various price measurement surveys at Statistics Canada. PMAC plays a critical role in bringing international expertise and best practices to inform Statistics Canada’s approach to constructing the CPI.Note 51
In 1994, Statistics Canada helped found the International Working Group on Price Indices (known as the Ottawa Group), which consists of CPI experts from national statistical agencies and universities around the world. This group, run by the United Nations Statistics Division, meets regularly to discuss theoretical and operational challenges in constructing price indexes.Note 52
Numerous quality assessment reports by the IMF have concluded that Canada’s CPI meets all international standards for methodological soundness, accuracy and reliability.Note 53
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Late twentieth century: 1983 to 1999
Consumer prices rose 5.8% on an annual average basis in 1983, marking the smallest rise since 1972 (Figures 1 and 3). Compared with the preceding years, annual average consumer price increases during the remainder of the 1980s were moderate.
The CPI basket was updated to reflect 1982 expenditure weights with the release of the January 1985 CPI. New items such as microwave ovens, video cassette recorders and contact lenses were added to the CPI basket, while metal dinette furniture and black-and-white televisions were removed (Appendix 2).Note 54
In 1991, the federal government and the Bank of Canada agreed on an inflation targeting monetary policy regime. Annual average inflation subsequently decelerated from 5.6% in 1991 to 1.4% in 1992. The CPI took on even greater importance as a macroeconomic indicator and policy guide. Since 1993, the joint agreement has been for the central bank to adjust its interest rates to maintain year-over-year growth in the All-items CPI within a 1.0% to 3.0% range.Note 55
A six-year interval (instead of the usual four years between reference periods) elapsed between the 1986 basket update in 1989 and the 1992 update in 1995. This interruption in the CPI basket-update cycle coincided with the introduction of the federal Goods and Services Tax (GST) in January 1991. Because tax changes can affect consumer spending behaviour, Statistics Canada chose the 1992 reference period to ensure the CPI reflected any adjustments to consumption patterns resulting from the introduction of the GST.
With the introduction of the 1992 CPI basket in 1995, the CPI target population was redefined to include all private households in Canada, regardless of urban or rural residence.Note 56 This remains the CPI target population to this day. The 1992 basket update expanded price collection to better represent provinces with significant rural and small-city populations.Note 57 Starting with the 1992 CPI basket update, the national-level CPI was calculated as a weighted average of the indexes for the ten provinces and two territories, whereas previously it had been a weighted average of city indexes.Note 58 Also beginning with this basket update, provincial indexes were produced using prices collected to represent the entire province, as opposed to individual urban centres.Note 59
Government-wide downsizing in the 1990s led to funding cuts to several of Statistics Canada’s programs, including the CPI program. The number of price quotes from field collection used annually to calculate the CPI was significantly reduced during this decade. To uphold quality standards, the number of published indexes had to be reduced, as well.
While consumer prices as a whole increased during 1980s and 1990s, certain CPI components saw dramatic declines, reflecting factors such as technological change, global manufacturing and increasingly competitive world markets. For example, on an annual average basis, consumers paid less almost every year for electronic equipment. Between 1995 and 2000, prices for audio equipment fell 14.3%, while prices for video equipment declined 18.6%. Over the same time period, consumers saw a 62.4% decline in prices for digital computing equipment. In order to improve the measurement of pure price change in consumer electronics, in 1996 Statistics Canada adopted the hedonic quality adjustment technique for the computer equipment, software and supplies index.Note 60 This method was later applied to the Internet access services index in 2008.
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Box 3: Bias in the Consumer Price Index
A bias is a systematic error that consistently leads to over- or underestimation of the phenomenon being measured.Note 61 Although techniques and methodologies exist to minimize CPI bias, all consumer price indexes are subject to some degree of bias because of the complexity of measuring price change.
In 1996, consumer price indexes around the world came under public scrutiny with the publication of the final report of the Advisory Commission to Study the Consumer Price Index (commonly called the Boskin Commission). The report examined the American CPI and made a range of technical and methodological recommendations for reducing its bias.Note 62
In light of the Boskin Commission’s findings, in 1997 Statistics Canada published a report describing the steps that had been taken to reduce bias in Canada’s CPI to that date.Note 63 For example, Statistics Canada was the first statistical agency in the world to employ a geometric mean for aggregating prices at the micro level in 1995, thus eliminating a source of upward bias.Note 64 As well, bias in the CPI was reduced by frequently updating the basket and by introducing new products between basket updates.Note 65 More recently, Statistics Canada has made important progress in reducing bias in the CPI as part of the Consumer Price Index Enhancement Initiative.
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Twenty-first century changes
The first basket update of the twenty-first century was implemented in January 2003 to reflect 2001 basket weights. A five-year gap (instead of the usual four years) separated the implementations of the 1996 and 2001 basket weights because the annual Survey of Household Spending (SHS) had replaced the Family Expenditure Survey in 1997. The year 2001 was used as the basket reference period because SHS estimates for the territories were not available for the year 2000.Note 66 Budget constraints and concerns about computer software bugs related to the year 2000 also contributed to the choice of a 2001 basket reference period.Note 67
Also with the 2001 basket update, a methodology change was made so that seasonally adjusted aggregate indexes, including the All-items CPI, were no longer calculated as weighted averages of their seasonally adjusted sub-component indexes.Note 68 As of the January 2003 reference period, the All-items CPI, the eight major component indexes, and special aggregates were seasonally adjusted directly, independently of their respective sub-indexes.
In 2006, an error was discovered in the traveller accommodation index of the CPI. It was estimated that this error, which was processing related, caused the annual average change in the All-items CPI to be understated by an average of 0.1 percentage points every year between 2001 and 2005. While the mistake was corrected going forward, the historical series was not revised because of the no-revision policy of the CPI. In response to the error, Statistics Canada implemented a series of measures to improve the governance and management methods used when systems are developed and also significantly raised testing standards.
In 2008, Canada, along with the rest of the world, experienced a recession as the global financial crisis unfolded. The Canadian CPI edged up 0.3% in 2009, its smallest annual average increase since 1994 (Figure 1). Consumers paid 0.3% less for shelter and 5.4% less for transportation in 2009 compared with 2008, illustrating once more the close relationship between CPI inflation and overall economic performance.
The CPI basket incorporated a range of new goods and services in the twenty-first century. Internet access services and financial services were added to the CPI basket as part of the 2001 basket update in 2003. Later, the growing importance of digital devices was reflected in the CPI basket update based on the 2009 SHS, which was introduced in 2011. The multipurpose digital devices component was created to measure price change for emerging consumer technologies such as tablet computers and smartphones. These items have continually decreased in price since they were introduced into the CPI. Retail club memberships, funeral services, government services (such as passport fees) and legal services were also added to the CPI basket (Appendix 2).
The Consumer Price Index Enhancement Initiative
In 2009, Statistics Canada began the Consumer Price Index Enhancement Initiative. The objective of this five-year project was to produce an even better measure of consumer price movement in Canada, based on high-quality and internationally respected methodologies combined with a more efficient technical infrastructure.
As part of the initiative, Statistics Canada increased the number of prices collected to make the CPI sample more representative of consumer habits. The number of field-collected price quotes in the CPI sample nearly doubled. As well, the design of the sample was enhanced to include a more varied selection of stores and products, and the geographic coverage was improved.Note 69
The initiative also led to enhanced methodologies for calculating pure price change by accounting for quality change for more than 100 products.Note 70 For example, between 2009 and 2013, Statistics Canada implemented a series of methodological improvements to the indexes for prescribed medicines, for travel tours, for the purchase of passenger vehicles, as well as for passenger vehicle parts, maintenance and repairs.
These activities were supported by major projects for improving data collection infrastructure and data processing. For instance, field data collection devices were used more extensively in the collection of price quotes for goods and services, eliminating many paper forms. As well, a more modern price index estimation system was developed.
As part of the initiative, Statistics Canada began updating the CPI basket every two years instead of every four years, aligning the agency’s practice with that of other advanced statistical agencies (Box 2).Note 71 This goal was achieved with the 2011 basket update, which came into effect with the release of the February 2013 CPI. More frequent basket updates enable the index to better reflect recent changes in consumers’ buying habits, and thus help reduce the product substitution bias in the CPI (Box 3). In addition, compared with the previous basket update, the elapsed time between the basket weight reference period and the update implementation date was shortened by three months.
With the release of the December 2014 Consumer Price Index, Canada’s CPI covers a century of change in consumer prices. This historical time series spans periods of economic expansion, recessions, war, demographic changes, technological advancements and ongoing improvements in price index theory and practice. The history of the CPI illustrates the challenges involved in measuring changing consumer prices over time. The constant maintenance, updates and research required to keep the index accurate and relevant require the work of hundreds of people at Statistics Canada headquarters and regional offices. With the completion of the Consumer Price Index Enhancement Initiative in 2015, the quality of the CPI is better than it has ever been, and Statistics Canada is well positioned to continue the evolution of the CPI into the future.
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