In January 2003, Canada pension plan, CPP, including disability rates increased by 1.6%. This increase was based on the monthly average change in the Consumer Price Index, CPI—All items, compiled by Statistics Canada, for the 12 month period November 2001 to October 2002.
Although consumers paid 3.9% more in December 2002 than they did in December 2001 for the goods and services in the CPI basket, it should be noted that the CPI is a “snapshot” and the 3.9% quoted above reflects the change in the CPI between the index in December 2001 and the index in December 2002. The CPI experienced monthly increases and decreases during the year, i.e. goods and services became less expensive or more expensive throughout the year. CPP benefits are adjusted, increased, to even out fluctuations and take into account the average change, increase, in the CPI over a full 12 month period.
According to the latest release from the CPI, published by Statistics Canada on February 27, 2003, “…the annual average All items CPI increased 2.2%, a slightly slower rate of increase than the 2.6% observed for 2001”.
Canada pension plan benefit increases have a direct correlation to the CPI and are calculated in the following manner in accordance with the Canada Pension Plan Act and Canada Pension Plan Regulations: Every January, CPP benefit increases are based on the average CPI increase over the 12 month period, November to October, as compared to the same preceding 12 month period.
To determine the CPP increase for 2003, i.e. 1.6%, we calculated the average CPI between November 2001 and October 2002, 118.2, and divided it by the previous year’s average CPI. Between November 2000 and October 2001, the average CPI was 116.3. One hundred and eighteen point two, 118.2, divided by one hundred and sixteen point three, 116.3, equals 1.016. Expressed as a percentage, there was a 1.6% increase in the average CPI between 2000-01 and 2001-02 and this percentage was used to escalate the CPP rates.
It should be noted that where there is a decrease in the average CPI year over year, this will not result in a decrease in CPP benefits. Rates would not change for the year following the decrease. Rates are only adjusted upwards.
In a time when the rate of inflation is increasing, such as now, the resulting adjustment in benefits may be less than if a December to December comparison had been used. But this is not always the case. For example, if the December to December increase in the Consumer Price Index had been used for CPP benefits in January 2002, the benefits would only have been increased by 0.7%. Instead, using the method set out in the CPP legislation, the increase was 3.0%.