Study: Is inflation higher for seniors?

The Consumer Price Index (CPI) tracked very closely the inflation experienced by seniors as a group between 1992 and 2004, according to a new study. This is important because the CPI is used to index old-age pensions.

During this 12-year span, seniors-only households experienced an average annual rate of inflation of 1.95%. This was only slightly higher than the rate of 1.84% for all other households, and 1.86% for all households combined.

The study examined the inflation rate experienced by households composed exclusively of seniors aged 65 and over, comparing them with all other Canadian households and the official CPI.

Starting in 1998, seniors did begin to encounter slightly higher price increases for certain items. As a result, a small gap did grow between inflation for seniors-only households and other households, which lasted until 2002.

The gap was due to price increases in items such as mortgage rates and some energy products, where trends in prices had changed since 1992. But it was not due to long-term trends in prices for items such as electronics and tuition.

Seniors tend to spend a different proportion of their budget on various items than do other households. However, price gains for many of these items also tend to offset each other.

The study also showed there are substantial variations in inflation between seniors from province to province, ranging from a low of 21.2% in Quebec to a high of 32.0% in Alberta. The national average was 24.4% during the 12-year period.

In addition, inflation rates for seniors varied depending on their household circumstances. For example, seniors who owned their own home had very different inflation rates than seniors who rented.

Senior households spend differently

Seniors may experience different rates of inflation because there are some fairly significant differences in spending patterns between them and other households.

Seniors tend to spend proportionally less on transportation items, such as new cars and gasoline, according to the 2001 Survey of Household Spending.

They also tend to spend a smaller proportion of their income on clothing and most types of entertainment, such as recreational vehicles and audio/visual equipment. And they spend proportionally less on alcohol and tobacco products.

However, seniors spend proportionally more on travel and reading materials, utilities and rent and tenants' expenses.

For example, for every $100 of their expenditure budget, seniors on average spend $56 on food and shelter, including utilities, compared with only $45 among other households.

Recreational and sports equipment and services combined are the most important factors contributing to a slightly higher inflation for seniors-only households. They include such items as computers, audio/visual and photographic equipment, cable television subscriptions, travel and recreational vehicles.

The impact on the CPI of electronic items is quite large and continuous, as their prices have fallen steadily over time. However, seniors have not benefited from these price decreases as much as younger households because they do not spend as much of their income on these items.

Seniors spend a relatively larger portion of their income on cable television subscriptions, a main item in the CPI's recreation category. The price of cable TV has gone up steadily, increasing 75% between January 1992 and February 2004. As a result, the increases in the CPI experienced by seniors were again pushed higher.

Home tenure was also an important factor in determining differences in inflation rates among seniors. For example, the national rate of inflation between January 1992 and February 2004 for seniors who were renters was only 22.7%, well below the pace of 28.1% among seniors who owned their homes.

Gap varies from province to province

Differences in the inflation rate between senior households and others were small at the national level. However, they varied greatly from one province to another between 1992 and 2004.

The inflation rate for seniors households was at or above the national average of 24.4% in five provinces: Nova Scotia, Ontario, Manitoba, Saskatchewan and Alberta.

In addition, the inflation rate for seniors was less than the rate for all other households in every province. But the gap between the two groups varied substantially, and it was widest in British Columbia and New Brunswick.

The All-items CPI tracked seniors' inflation at the national level fairly well. But this was not the case at the provincial level. This is because differences in inflation between the provinces are much larger than the average difference between seniors-only and all other households at the national level.

Definitions, data sources and methods: survey numbers, including related surveys, 2301 and 3508.

The analytical article Is Inflation Higher for Seniors? 1992 to 2004 (11-621-MIE2005027, free) is now available online in the Analysis in Brief (11-621-MIE).

For more information, or to enquire about the concepts, methods or data quality of this release, contact Radu Chiru (613-951-3998), Prices Division.