What is the Consumer Price Index (CPI)?
Issue number: 2014001
An Overview of Canada's Consumer Price Index (CPI) - Video transcript
What is the Consumer Price Index (CPI)?: Description of visuals
The Consumer Price Index, commonly referred to as the CPI, is a measure of the rate of average price change for goods and services bought by consumers in Canada. The CPI is the most widely used indicator of inflation.
(A stylized search box opens the video – "what is the Consumer Price Index (CPI)?" is entered. The results give the definition said by the voiceover. A very basic line chart with a rising line comes in to illustrate inflation, with the words "The most widely used indicator of inflation" next to it. )
Imagine a shopping basket. Fill the basket with things that you and other people in Canada might buy. Now, track the cost of this exact basket over time. The change in the cost of the basket is a basic illustration of pure price change, which is what the CPI measures.
(Basket appears, representative items fall into it under the heading "things that you and other people might buy." A price tag appears on the basket, reading "$60." The camera then moves to an identical basket, with a price tag that reads "$62." A graphic of a circle appears onscreen with the term "pure price change," and then "what the CPI measures.")
The CPI basket includes all goods and services purchased by households in Canada. The groceries you buy, the electricity and water rates you pay, the haircuts you get, the hotels you stay in - and much more.
(Five boxes roll down, with icons representing each good or service. Respectively, they are a grocery bag, an electrical outlet, a water faucet, a barber's pole and a hotel sign.)
Each item in the basket receives a relative importance, or basket weight, that represents the proportion households' spend on each item. For example, a much larger share of Canadians' spending goes to gasoline than to milk; therefore, gasoline will receive a larger weight than milk in the CPI basket.
(A pie chart appears, with a basket in the background, the pie chart is superimposed over the basket, the pie chart is then divided into two sections to represent the different proportions attributed to gasoline and milk. The gasoline section is larger and the milk section is smaller.)
The basket represents the purchasing patterns of Canadian consumers, which change over time. Years ago, for example, the CPI included the price of a record player or eight-track. Today, the basket includes items such as smartphones and computers. Frequently updating the basket ensures that the CPI remains representative of consumer spending.
(A diagram with a stylized graphic image of a person and various lines connecting to dollar signs illustrates "purchasing patterns." A record player spinning a record appears, moving on a timeline to the text "Purchasing patterns change over time" which ends in a display that includes a smartphone and computer devices.)
With a practically infinite selection of goods and services, measuring the price of the basket requires a large-scale coordinated effort by Statistics Canada. Most of the price quotes used to calculate the CPI are collected in retail outlets in numerous locations all across the country. The collection is done by Statistics Canada employees, known as interviewers. Other prices are collected at Statistics Canada headquarters using sources such as administrative data and the Internet.
(A box opens with a video taken from a moving shopping cart, showing the practically infinite selection of goods available in a supermarket. This scene changes to a network of icons representing employees engaged in a large-scale coordinated task. The third scene shows an office worker typing on the numerical pad of a keyboard in representation of doing calculations. The fourth scene is a map of Canada with price tags appearing in each province and territory, showing that price quotes are collected in retail outlets across the country. The fifth scene is a cartoon depiction of employees known as "Interviewers," as indicated in text below the image, under which is the description: "Collect price quotes in retail outlets across the country." This scene changes into an illustration of three buildings, with the text "Statistics Canada Headquarters" below them.)
In order to measure pure price change, interviewers visit retail outlets and collect prices each month for identical products. Changes in the quantity or quality of collected products are taken into account. For example, if the size of a juice box becomes smaller but the price does not change, consumers are implicitly paying more for the item. Adjustments are made so that these changes are reflected in the CPI.
(Shopping bags of various colours, each bearing a month of the year, appear in sequence under the heading "Monthly visits for price quotes." A juice box is shown with the price of $2 printed on the side, as well as the volume of juice, which is 500ml. A price tag appears, with two prices printed on it: overall price, and price per litre. It reads "$2 for 500ml = $4 per litre." The box shrinks and the volume on the side changes to "250ml." The tag now reads "$2 for 250ml = $8 per litre.")
To ensure that the CPI is a high-quality indicator of consumer price change, Statistics Canada follows internationally accepted methods that compare favourably with those of other statistical agencies around the world.
(A turning globe appears. The text "high-quality indicator of consumer price change" appears below it. )
The Canadian CPI is used for a variety of purposes, including adjusting wages or payments in order to maintain purchasing power in an environment of changing consumer prices. For example, pension payments and tax brackets are adjusted based on changes in the CPI. The CPI is also used by governments and businesses as a tool to evaluate the performance of the economy and to help guide the formation of fiscal and monetary policies.
(A blank cheque appears under the heading "adjusting wages." An ATM slot with bills sliding out appears over the text "pension payments and tax brackets are adjusted based on the CPI." An illustration of a city appears over the text "Governments and business." Then a line graph appears under the heading "fiscal and monetary policy." )
Thank you for watching. Visit Statistics Canada's website if you would like more information on the CPI.
(The text "Thank you for watching" appears onscreen with the URL to the website, "www.statcan.gc.ca")
(Video fades to black.)
(The Government of Canada word mark appears and then fades to end.)