Abstract
The paper shows that the consumer price index (CPI) is often a very poor measure of inflation rates relevant to individual senior households. A high proportion of the inflation rates measured by household-specific price indexes falls more than one percentage point above or below the CPI inflation rate. Moreover, I use the Engel method proposed by Hamilton and Costa and demonstrate that the CPI inflation rate overestimated the average inflation rate faced by Canadian senior households during the 1970s and the 1980s but has accurately measured average inflation for such households during the 1990s. Finally, I estimate costs of overstating inflation adjustments to Canada Pension Plan.
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