Real Inflation Rate

The CPI in Canada is the index used to show the inflation rate of the country. This is publicized to show how the cost of living is (usually) increasing. This index is also used as the guide to increases in inflation adjusted payments such as the Canada Pension Plan. There is an incentive to minimize the true inflation rate to reduce pension payout increases.

Since 1986, The Economist magazine has used a method they developed to compare the relative cost of living in countries around the world based on the cost of a McDonald's Big Mac hamburger. The thinking behind this is that the cost of a Big Mac incorporates all the costs involved in producing a product: raw materials, labour, regulations and taxes. The cost of living in a given country could then be arrived at by looking at the cost of a Big Mac.

I thought of using this method to arrive at the true inflation rate in a country (specifically Canada) compared to the government stated CPI. This will not be as accurate as the comparison among the world's countries which takes place in the same year. My method looks at the price changes over many years and doesn't consider changes in the production of the Big Mac, such as changes in size, and increases in productivity. But this difference would have less impact the more recent the comparison.

The chart below compares the cost of a Big Mac in Canada compared to the government provided CPI data for the years 2000 to 2024. The numbers converge at the 2000 starting year by factoring the CPI to match the cost of the Big Mac in that year.

I used the website Social Science Statisctics to generate the slope to even out the rise and provider a more accurate estimation of the true rise by removing the effects of those points outside the general slope of the data set.

Based on the government supplied information, the CPI rose 56.1% from 2000 to 2024. Based on the cost of the Big Mac, the price increase for the same period was 166.7%, almost triple the stated CPI!