Article Excerpts:
"The consumer price index is the single most important economic measure Statistics Canada produces. Hundreds of billions of dollars of pension payments, tax deductions, payments and credits are explicitly indexed to it in legislation and most workers wages are implicitly linked to it. Changes of a fraction of a per cent in the measurement of CPI could mean billions of dollars in annual savings for governments on one hand and lower incomes for pensioners, workers and taxpayers on the other.
The Bank of Canada estimated the CPI overstates inflation by 0.6 per cent a year because changes in the index don’t adjust as fast as consumers do to lower prices for goods or for improvements in quality of new goods.
The impact may be relatively small initially, but it cumulates rapidly. For instance, a 0.6 percentage point reduction in Old Age Security payments would save the federal government $210-million in the first year, but almost $3-billion annually in ten years. Increased revenues from a 0.6 per cent lower increase in the basic personal amount for taxes would increase the federal government’s revenues by $180-million in the first year, but more than $2.5-billion annually in ten years. These are just two of the dozens of federal tax thresholds, deductions and credits that would be affected."
"The consumer price index is the single most important economic measure Statistics Canada produces. Hundreds of billions of dollars of pension payments, tax deductions, payments and credits are explicitly indexed to it in legislation and most workers wages are implicitly linked to it. Changes of a fraction of a per cent in the measurement of CPI could mean billions of dollars in annual savings for governments on one hand and lower incomes for pensioners, workers and taxpayers on the other.
The Bank of Canada estimated the CPI overstates inflation by 0.6 per cent a year because changes in the index don’t adjust as fast as consumers do to lower prices for goods or for improvements in quality of new goods.
The impact may be relatively small initially, but it cumulates rapidly. For instance, a 0.6 percentage point reduction in Old Age Security payments would save the federal government $210-million in the first year, but almost $3-billion annually in ten years. Increased revenues from a 0.6 per cent lower increase in the basic personal amount for taxes would increase the federal government’s revenues by $180-million in the first year, but more than $2.5-billion annually in ten years. These are just two of the dozens of federal tax thresholds, deductions and credits that would be affected."
Consumer Price Index: measure of general changes in market prices of selected group of goods and services purchased by a typical urban family. This price index is computed each month by Statistics Canada. It is widely used to show the rate of inflation and helps to show whether there has been real growth in the economy. In 1990, the Consumer Price Index was estimated at 117.0.
Tight Money Policy: by raising the bank rate, exercising moral suasion, and reducing the money supply, the government uses this method to reduce the rate of inflation Inflation: general increase in prices of goods and services over a period of time. In inflationary periods, the purchasing power of money decrase Wage and Price Controls: policies aimed at restraining inflation by holding wage and price increases below a specific level. The policies may be compulsory, in which case they are called controls, or voluntary, in which case they are called guidelines |