Fri Nov 20 07:30:00 CST 2015

Consensus Actual Previous
CPI-M/M 0.0% 0.1% -0.2%
CPI-Y/Y 1.0% 1.0% 1.0%
BoC Core-M/M 0.2% 0.3% 0.2%
BoC Core-Y/Y 2.0% 2.1% 2.1%
Core CPI-M/M 0.2% 0.3%
Core CPI -Y/Y 1.7% 1.8%

October consumer price index edged up 0.1 percent and was up 1.0 percent on the year. Lower energy prices continued to moderate the annual increase in the CPI, led by the gasoline index, which was down 17.1 percent in the 12 months to October. Prices were up in seven of the eight major components from a year ago led by higher prices for food. Increases in the shelter index and the household operations, furnishings and equipment index also contributed to higher consumer prices. The transportation index, which includes gasoline, recorded its 12th consecutive year-over-year decline.

Food prices were up 4.1 percent on the year after increasing 3.5 percent in September. This acceleration was attributable to higher prices for food purchased from stores, which increased 4.6 percent after rising 3.9 percent the previous month. Prices for fresh fruit, daily products and food purchased from restaurants increased. The index for recreation, education & reading rose 1.9 percent following a 2.5 percent increase in September. Shelter was up 1.1 percent matching the rise in September. The natural gas index decreased 10.9 percent in the 12 months to October, after declining 4.4 percent the previous month. The transportation index declined 3.2 percent on the year after decreasing 3.5 percent in September.

On a seasonally adjusted monthly basis, the Consumer Price Index increased 0.2 percent following a 0.2 percent decrease in September. In October, four of the eight major components increased on a seasonally adjusted monthly basis, three indexes posted no change, while the recreation, education and reading index declined.

The Consumer Price Index is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation. Changes in the CPI are critical to the Bank of Canada which has an inflation target range of 1 percent to 3 percent.

The consumer price index is the most widely followed indicator of inflation. An investor who understands how inflation influences the markets will benefit over those investors that do not understand the impact. In countries such as Canada, where monetary policy decisions rest on the central bank's inflation target, the rate of inflation directly affects all interest rates charged to business and the consumer.

Inflation is an increase in the overall prices of goods and services. The relationship between inflation and interest rates is the key to understanding how indicators such as the CPI influence the markets - and your investments.

Inflation (along with various risks) basically explains how interest rates are set on everything from your mortgage and auto loans to Treasury bills, notes and bonds. As the rate of inflation changes and as expectations on inflation change, the markets adjust interest rates. The effect ripples across stocks, bonds, commodities, and your portfolio, often in a dramatic fashion.

By tracking inflation, whether high or low, rising or falling, investors can anticipate how different types of investments will perform. Over the long run, the bond market will rally (fall) when increases in the CPI are small (large). The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.

As the most important indicator of inflation the CPI is closely followed by the Bank of Canada. The Bank of Canada has an inflation target range of 1 percent to 3 percent but focuses on the 2 percent midpoint. It uses CPI and core which excludes food and energy as their prime inflation indicators. However, for operational purposes, the Bank also monitors a core CPI which excludes eight volatile items including fruit, vegetables, gasoline, fuel oil, natural gas, mortgage interest, inter-city transportation and tobacco products.