I am Maya. We hear the word “Inflation” on the news every night, but how do we actually know it’s happening? We can’t just guess based on the price of one chocolate bar. Economists need a scientific way to measure the “cost of living.” Today, we are diving into the world of indices—the mathematical yardsticks of our economy. We’ll start with the most famous one: the Consumer Price Index, or C P I. This single number tells us if the Bank of Canada is succeeding in its mission and, more importantly, how much more expensive your life is becoming every year.I am Noah. I’m going to show you that the C P I isn’t just a number for professors; it is a tool for you. We’ll look at the “Basket of Goods” and see how Statistics Canada tracks over six hundred items to see what a typical family spends. I will walk you through the math to calculate the annual inflation rate yourself. Once you know how to do this, you’ll be able to tell if your part-time job raise is actually making you richer, or if you’re just running in place while prices climb faster than your paycheque.I am Liam. While the C P I tracks what we spend, other indices track what we own. We’ll look at the S and P slash T S X Composite Index. This is the ultimate “Report Card” for the Canadian stock market. It tracks the value of the biggest companies in our country. If you want to know if the Canadian economy is growing or shrinking, this is the index you watch. We’ll also touch on the New Housing Price Index, which is vital for anyone dreaming of owning their first home. Understanding these indices is the secret to reading the financial news like a pro.And I am Chloe. Indices tell us what is happening, but we need to understand the why. We’re going to explore how real-world events—like border closures, supply chain issues, and changes in the value of the dollar—cause these indices to move. Economics isn’t just numbers on a screen; it’s a reflection of everything happening in the world, from weather patterns in Florida affecting orange prices to global demand for Canadian oil. Let’s start by looking inside the grocery basket.The Consumer Price Index is like a “giant shopping trip” that never ends. Statistics Canada identifies a “Basket” of goods and services that represents what an average Canadian household buys. This isn’t just milk and bread; it’s divided into eight major categories: Food, Shelter, Household Operations, Clothing, Transportation, Health and Personal Care, Recreation and Education, and finally, Alcoholic Beverages and Tobacco. Every month, researchers track the prices of about six hundred items across the country. By comparing the total cost of this basket this month to the cost of the same basket in a “base year,” we get the C P I. If the index is 150, it means the basket that cost one hundred dollars in the base year now costs one hundred and fifty dollars. This is our primary way of measuring inflation.Now, let’s do the math. To find the Annual Inflation Rate, you need the C P I from two different years. The formula is: New Index minus Old Index, divided by the Old Index, all multiplied by one hundred. Let’s try it. Suppose the C P I last year was 140, and this year it is 147. First, 147 minus 140 equals 7. Then, 7 divided by 140 is 0.05. Multiply by 100, and you get an inflation rate of five percent. Why does this five percent matter to you? Because if you have one thousand dollars in a savings account earning only one percent interest, but inflation is five percent, you are actually losing four percent of your purchasing power every year! Your money is growing, but the prices of the things you want to buy are growing much faster. This is the difference between your “Nominal” interest rate and your “Real” interest rate. To be truly wealthy, your returns must stay ahead of the C P I.Beyond the C P I, the media loves to talk about the S and P slash T S X Composite Index. This index doesn’t track groceries; it tracks the “Market Capitalization” of about 250 of the largest companies on the Toronto Stock Exchange. It covers everything from big banks like the Royal Bank to energy giants like Enbridge. When you hear the “TSX is up two hundred points,” it means that, on average, the value of these major Canadian businesses has increased. For you, this is a measure of economic confidence. If the TSX is rising, it often means businesses are profitable and hiring. We also watch the New Housing Price Index. In Ontario, housing is a huge part of our net worth. If this index rises ten percent in a year, it means the “barrier to entry” for new buyers is getting higher. For a high school student, a rising housing index is a “con” for your future buying plans, but it’s a “pro” for your parents’ equity. Understanding these different yardsticks helps you see where the money is moving in our economy.But what causes these indices to spike or dip? It all comes down to Supply and Demand. If there is a border closure that prevents trucks from bringing fresh fruit into Canada, the Supply drops. Since we still want fruit, the Demand stays high, and the price in the C P I basket spikes. We also have to look at Commodity Prices. Canada is a major producer of oil and minerals. If global demand for oil goes up, the S and P / TSX often goes up because our energy companies are making more money. However, this might make the “Transportation” part of the C P I basket more expensive for you at the gas pump! We also have to watch the Exchange Rate. If the Canadian dollar drops in value compared to the U.S. dollar, every single item we import becomes more expensive, which pushes the C P I up. By interpreting these indices, you can see how global events are hitting your local grocery store. Use the data in your practice worksheet to calculate the inflation rate for the different Canadian cities provided. You’ll see that inflation isn’t the same everywhere!Finally, remember that the Employment Rate is another key indicator. When indices like the C P I rise too fast, it can actually lead to higher unemployment if the Bank of Canada has to raise interest rates to slow things down. Businesses might stop hiring if their borrowing costs get too high. This is why financial planning is about looking at all the indices together. You need to know if prices are rising (CPI), if businesses are healthy (TSX), and if people are working (Employment Rate). When you put these pieces together, you get a full picture of the economic world you are about to enter. In your MAP-4-C or CIA-4-U class, you will use these indices to solve complex problems about purchasing power over time. Mastering this math ensures that you’ll never be surprised by a changing economy.As a final task, I want you to look up the Current C P I on the Statistics Canada website. Compare it to the C P I from five years ago. Use the formula we learned to see how much the cost of living has changed in just your lifetime. You might be surprised to see how much Real value a dollar has lost. This is the best motivation to learn about investing—because the only way to beat inflation is to have a plan that grows faster than the index. Good luck with your calculations, and we’ll see you in the next module where we’ll look at how to build that investment plan!
