The inflation rate experienced by seniors isn’t all that different from the price pressures faced by other Canadian households, according to a new study by Statistics Canada.

Seniors with indexed pensions often wonder if their retirement income is keeping up with the ever-rising cost of living. In the past, some observers have maintained that the consumer price index, which is used to adjust some workplace pensions as well as public pensions for inflation, doesn’t accurately reflect the kind of price increases actually faced by seniors.

The new study shows that seniors spend a different proportion of their budgets on various items than other households, and price gains for many of the items tend to balance each
other out.

For example, study author Radu Chiru, of StatsCan’s prices division, says consumer items such as electronics have continually declined in price, pushing down inflation for households in general more than for seniors. That’s because younger households spend more of their income than seniors on items such as computers and audio/video and photographic equipment.

Tuition fees, on the other hand, have been going up faster than other items included in the CPI, and that has pushed up inflation for many younger households. While seniors may not benefit as much from lower electronics prices, Chiru notes, they are not hit as hard by hikes in tuition fees.

Items such as travel and cable-TV subscriptions, which figure prominently in seniors’ budgets, have gone up. But senior households spend a slightly smaller proportion of their income on purchasing cars and gasoline, so they are less affected by swings in private transportation costs.

Chiru’s study looked at inflation over a 12-year period, January 1992 to February 2004. He says prices paid by seniors rose 26.1% over that time, while those paid by all other households were up 24.4%, which is not a significant difference.

There were, however, substantial variations from one province to another. The inflation rate for senior households was at or above the national average of 24.4% in five provinces: Nova Scotia, Ontario, Manitoba, Saskatchewan and Alberta, Chiru says. On average, inflation for seniors ranged from a low of 20.1% in Quebec during the period to a high of 30.4% in Alberta.

Chiru says differences in inflation among provinces are mostly the result of the very different price movements of some items that are important for all households. While items such as gasoline prices, clothing and electronics tend to move largely in tandem across Canada, he says, price movements of some other large items, such as tuition, car insurance and rent, vary widely among provinces.

Energy costs are among the most important causes of differing provincial CPI increases.
For instance, people in the Atlantic provinces tend to use mostly fuel oil rather than piped gas for home heating. Fuel oil prices did not go up as fast as natural gas between 1992 and 2004, so inflation did not rise as much in Atlantic Canada. Conversely, price spikes in the cost of natural-gas heating affected mostly households in Western and Central Canada, Chiru says. In Quebec, where people mostly use electricity to heat their homes, inflation was lower partly because electricity costs did not go up as fast as those of other energy sources.

Chiru says inflation rates for seniors also depend on their household circumstances.

For instance, senior homeowners had very different inflation rates than seniors who rented. Seniors who rented saw inflation of 22.7% over the 12-year period, while senior homeowners saw their cost of living rise by 28.1%. One explanation, Chiru suggests, is that many seniors who have paid off their mortgages, don’t benefit as much from lower mortgage rates. And rents across Canada were increasing at a slower rate than other prices over the period.

In fact, the difference in inflation experienced by seniors who rent and seniors who are homeowners was greater than the inflation differences between seniors and all other households, Chiru notes. Also important were the differences between high-income and low-income seniors.

In some provinces, household composition was important, with single senior households experiencing large inflation differences compared with two-senior households. In each case, the inflation differences between those groups of seniors were more pronounced than the differences between seniors and others, Chiru says.

Others studies have found no matter how subgroups of the population are defined, inflation experiences tend to vary much more for households within the groups than among them.

@page_break@All told, says Chiru, the province of residence, type of home ownership, home heating and some other characteristics are more important than age in explaining different inflation rates. Once such variables are taken into account, there is no statistically significant effect of being a seniors-only household on the inflation experienced.
IE