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) All-Items Index. They come into effect each January. These increases are legislated under the Canada Pension Plan Act 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 2002 as the base year. In 2002, the CPI was equal to 100. This means that the basket of goods in 2002 cost Canadians $100.00. The CPI in January 2010 was measured at 115.1, meaning that the same basket of goods that cost $100.00 in 2002 now costs $115.10.

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, 2012:

2012 CPP Rates

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