Fri May 18 07:30:00 CDT 2018

Consensus Actual Previous
CPI-M/M 0.3% 0.3% 0.3%
CPI-Y/Y 2.3% 2.2% 2.3%
BoC Core-M/M -0.1% 0.2%
BoC Core-Y/Y 1.8% 1.4%

April consumer price index was up 0.3 percent on the month and 2.2 percent when compared with a year ago following a 2.3 percent increase in March. On the year, seven of eight major components increased with the recreation, education and reading index the lone major component to decline. Services were up 2.3 percent after jumping 2.7 percent in March.

Prices for non-durable goods (2.7 percent) increased less than they did in March (3.0 percent). On the year, gasoline prices jumped 14.2 percent after 17.1 percent in March. Semi-durable goods increased 2.3 percent in April, following an increase of just 0.2 percent in March. This was the largest increase in semi-durable goods since March 2015 and was largely the result of a 2.5 percent on the year increase in the clothing index in April.

On a seasonally adjusted monthly basis, the CPI rose 0.1 percent in April, matching the increase in March. Five of eight major components increased, with the clothing and footwear index rising the most. The recreation, education and reading index registered the largest decline.

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.