Fri Sep 22 07:30:00 CDT 2017

Consensus Actual Previous
CPI-M/M 0.2% 0.1% 0%
CPI-Y/Y 1.5% 1.4% 1.2%
BoC Core-M/M 0.0% -0.1%
BoC Core-Y/Y 0.9% 0.9%
Core CPI-M/M 0.0% 0%
Core CPI -Y/Y 1.5% 1.5% 1.5%

August consumer price index was up 0.1 percent on the month and 1.4 percent from a year ago following a 1.2 percent in July. Prices were up in six of the eight major CPI components in the 12 months to August, with the transportation and shelter indexes contributing the most to the annual increase. The clothing & footwear index and the household operations, furnishings & equipment index declined from a year ago. The Bank of Canada sees inflation rising for the second consecutive month which should please it.

Transportation costs rose 2.8 percent on the year following a 1.9 percent increase the previous month. As in July, gasoline prices contributed the most to the gain in transportation prices and to their acceleration. Air transportation costs grew at a greater rate in August than in July. The shelter index increased 1.3 percent for a second month on the year. Food prices were up 0.9 percent after increasing 0.6 percent in July.

On a seasonally adjusted monthly basis, the CPI increased 0.2 percent in August matching the gain in July. In Five major components increased on a seasonally adjusted monthly basis, while three decreased.

Canada continues to post upbeat economic data as the economy recovers from the collapse in global crude prices. While the inflation rate remains below the central bank's target, the Bank of Canada argued that the sluggish readings were temporary when it raise interest rates earlier in July. The Canadian dollar weakened 0.2 per cent to $1.2308 after the data was released.

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.

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.