Impact of Inflation Increase on OAS and CPP: Comparing Adjustments

Updated on February 9, 2024

This article delves into a detailed discussion regarding the impact of inflation rate on OAS and CPP. Explore the effects of inflation hikes on your retirement income by reading through this post.

Inflation Rate VS OAS and CPP

Inflation, often considered a hidden tax affecting people worldwide, is a significant concern. To address this issue, the government has pledged to mitigate its impact by enhancing social programs like the Old Age Security (OAS) and the Canada Pension Plan (CPP).

The Consumer Price Index (CPI), which compares the prices consumers pay for a basket of goods over time, plays a crucial role in determining increases in CPP and OAS payouts. This mechanism ensures that beneficiaries’ lives become more manageable, and the positive growth demonstrated in the inflation rate compared to OAS and CPP reflects this.

To account for the increased cost of living due to inflation hikes, adjustments are made to both CPP and OAS payouts. Quarterly OAS calculations align with the elevated Consumer Price Index (CPI), while CPP benefits are computed annually in January. Exploring the dynamics between inflation rates and OAS/CPP adjustments provides valuable insights into these programs.

What is the Inflation Rate in Canada in 2024?

According to the International Monetary Fund (IMF), inflation is defined as the rate of price growth during a specific period, typically a year. The Bank of Canada projects that inflation will range from 2% to 3% by 2025, with expectations of staying around 3.5% until the middle of the year.

Inflation serves as a tool to evaluate the cost of specific items such as gas, haircuts, or bread, as well as a general indicator of overall living expenses within a nation. Additionally, inflation can affect an individual’s ability to save for the future, in addition to influencing daily living costs.

Inflation Rate VS OAS and CPP Overview

What’s The Effect of Inflation Hike on CPP?

The Consumer Price Index is utilized to calculate CPP Payment increases annually, typically in January. In 2024, another hike is anticipated. The highest pensionable income under the CPP is expected to increase to CAD 68,500 from CAD 66,600. Employers’ and employees’ rates will remain steady at 5.95% and 11.9% respectively in 2024, while the rates for self-employed individuals will remain unchanged.

Earnings falling between the newly determined additional highest pensionable income amount (CAD 73,200 for 2024) and the annual maximum pensionable earnings limit of CAD 68,500 will be subject to additional CPP contributions of 4% for both employers and employees starting in 2024.

What’s The Effect of Inflation Hike on OAS?

Quarterly adjustments to Old Age Security (OAS) payments are synchronized with inflation, determined by the variance in the average Consumer Price Index (CPI) between two consecutive sets of three-month intervals. For the October–December 2023 quarter, OAS payments are set to increase by 1.3%. This reflects a cumulative increase of 3.2% in OAS payments over the past year, spanning from October 2022 to 2023.

Your payments will increase based on the comparison between the average Consumer Price Index (CPI) for the previous quarter and the average CPI for the last three months. This calculation is performed quarterly. In 2024, Canadians’ Old Age Security may see an increase from 86,912 CAD to 90,997 CAD.

Final Understanding

Canadians’ Old Age Security may increase from 86,912 CAD to 90,997 CAD. According to the CRA, the current maximum pensionable earnings under the Canada Pension Plan, which currently stands at 66,600 CAD, will rise to 68,500 CAD.

The government has expanded the security payment coverage, leading to increased payments for OAS and CPP in 2019. However, seniors and retirees have unfortunately experienced less inflation than they would have preferred.

Therefore, it’s advisable to continue contributing to your retirement savings, even if you need to make slight monthly adjustments to accommodate inflation.

We would like to conclude this post on Inflation Rate vs CPP vs OAS. However, we welcome further discussion in the comment section.