Thu Dec 21 07:30:00 CST 2017

Consensus Actual Previous
CPI-M/M 0.2% 0.3% 0.1%
CPI-Y/Y 2.0% 2.1% 1.4%
BoC Core-M/M -0.1% 0.3%
BoC Core-Y/Y 1.3% 0.9%
Core CPI-M/M 0% 0.3%
Core CPI -Y/Y 1.8% 1.4%

November consumer price index was up 2.1 percent from a year ago following a 1.4 percent increase in October. The all-items excluding gasoline index rose 1.5 percent on the year after increasing 1.3 percent in October. Prices were up in seven of the eight major CPI components in on the year with the transportation and shelter indexes contributing the most to the increase. The clothing & footwear index declined.

Transportation prices rose 5.9 percent from a year ago following a 3.0 percent increase in October. Gasoline prices contributed the most to this acceleration, rising 19.6 percent after increasing 6.5 percent the previous month. The increase was partly attributable to higher crude oil prices in November, as well as a monthly decline one year earlier. The purchase of passenger vehicles index also accelerated to 3.6 percent following a 1.9 percent rise in October. The November increase was partly attributable to the greater availability of new 2018 model year vehicles.

The food index rose an annual 1.6 percent following a 1.3 percent increase the month before. The food index rose a monthly 0.8 percent in November, the largest monthly gain since January 2016. Household operations, furnishings & equipment were up 0.9 percent on the year after increasing 0.2 percent in October. The November increase was driven by growth in the telephone services which was partly attributable to a decline in prices in November 2016, which no longer influences the 12-month movement.

On a seasonally adjusted monthly basis, the CPI rose 0.5 percent in November. This was the largest increase since January 2017. Seven major components increased, while the health and personal care declined.

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.