Question of the Week – What is the consumer price index?

The consumer price index (CPI) is used to determine the changes in consumer prices experienced by Canadians. The CPI is determined by looking at the change in cost over time of a fixed basket of goods and services that are purchased by consumers. The basket always contains the same quality and quantity of goods which allows the CPI to reflect the pure price change.

Changes in the CPI are used to assess the price change associated with the cost of living. By looking at the CPI you can identify periods of inflation and deflation and in-turn, measure the purchasing power of money.

The CPI is reported monthly and gives the rate of inflation since a specific set time. The set time is the base value and is set to 100. The rate of inflation is based on how much the base value has risen since being set at 100. For example, a CPI reported at 100 would mean there has been 0% rise in inflation since the base value was set. If a CPI of 150 was reported than there has been a 50% rise in the inflation level since the base value was set.

Why is CPI important for investors? The CPI helps determine the purchasing power of your money by letting you know the rate of inflation. Some investors use inflation as a basis to determine what size their investment returns must be to maintain or grow the purchasing power of their money. Any investment interest tied to the rate of inflation also relies on CPI.

You can learn more about Nova Scotia’s CPI by visiting the Department of Finance website here.