CA: CPI


Fri Feb 23 07:30:00 CST 2018

Consensus Actual Previous
CPI-M/M 0.5% 0.7% -0.4%
CPI-Y/Y 1.5% 1.7% 1.9%
BoC Core-M/M 0.5% -0.5%
BoC Core-Y/Y 1.2% 1.2%
Core CPI-M/M 0.5% -0.5%
Core CPI -Y/Y 1.5% 1.7%

Highlights
January monthly consumer price index climbed a more than expected 0.7 percent and was up 1.7 percent on the year and also higher than anticipated. On a monthly basis, all major components advanced with the exception of clothing & footwear (down 0.8%). This was the largest monthly increase in a year. On the year, although the CPI increased more than anticipated, it still slipping from December's 1.9 percent increase and away from the Bank of Canada's 2 percent inflation target.

For the three measures of core inflation preferred by the Bank of Canada For the three measures of core inflation preferred by the Bank of Canada, CPI-common was up 1.8 percent on the year after 1.6 percent in December. Both the CPI-median and CPI-trim measures remained the same as in December at 1.9 percent and 1.8 percent, respectively.

Definition
The Consumer Price Index (CPI) is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly and annual changes in the CPI provide widely used measures of inflation. The policy target measure for the Bank of Canada (BoC), the annual CPI rate can be distorted by swings in the more volatile subsectors so the central bank also monitors an adjusted measure of the CPI that excludes a range of volatile categories in order to get a better handle on underlying trends.

Description
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.