| Consensus | Actual | Previous | |
|---|---|---|---|
| CPI - M/M | -0.5% | -0.6% | 0.1% |
| CPI - Y/Y | 6.4% | 6.3% | 6.8% |
| Core CPI - M/M | -0.1% | 0.1% | |
| Core CPI - Y/Y | 5.3% | 5.4% |
Highlights
Consumer prices fell more than expected in December, as the CPI index contracted 0.6 percent on the month after edging up 0.1 percent in November, its largest decline since April 2020. Inflation also slowed down on a 12-month basis, reaching a rate of 6.3 percent in December, down from 6.8 percent in November, below expectations. Forecasters in an Econoday survey had anticipated the headline index to fall 0.5 percent on the month, for a year-over-year increase of 6.4 percent.
Across the eight major categories, only shelter and food recorded higher prices on the month: 0.4 percent and 0.3 percent, respectively. Gasoline prices fell 13.1 percent on the month, accounting for much of December's decline as CPI excluding gasoline edged down just 0.1 percent. Energy was down 7.9 percent.
Core prices, excluding food and energy, were down 0.1 percent on the month and up 5.3 percent year-over-year. Goods prices overall fell 1.7 percent on the month and increased 6.9 percent year-over-year, while services increased 0.3 percent and 5.6 percent, respectively.
On a seasonally adjusted basis, monthly inflation was down 0.1 percent while the core index rose at a stable pace of 0.3 percent.
The Bank of Canada's three core measures of inflation averaged 5.6 percent in December, down from 5.8 percent in November.
The average 12-month inflation rate averaged 6.7 percent in the fourth quarter, below the Bank of Canada's 7.1 percent projection.
The BoC's latest Business Outlook Survey published Monday showed firms still expect inflation to top the central bank's 2 percent target in the short term. However, they anticipate slower input and output price growth in response to declining commodity prices and weakening demand. As a result, businesses see inflation within the BoC's 1-3 percent target range within five years, with the 2-year expectation slightly below 3 percent. On the consumer side, the BoC's latest Canadian Survey of Consumer Expectations shows expectations for inflation five years from now are near survey-low levels. Combined with today's report, the data argue for a slowdown in the pace of tightening.
Across the eight major categories, only shelter and food recorded higher prices on the month: 0.4 percent and 0.3 percent, respectively. Gasoline prices fell 13.1 percent on the month, accounting for much of December's decline as CPI excluding gasoline edged down just 0.1 percent. Energy was down 7.9 percent.
Core prices, excluding food and energy, were down 0.1 percent on the month and up 5.3 percent year-over-year. Goods prices overall fell 1.7 percent on the month and increased 6.9 percent year-over-year, while services increased 0.3 percent and 5.6 percent, respectively.
On a seasonally adjusted basis, monthly inflation was down 0.1 percent while the core index rose at a stable pace of 0.3 percent.
The Bank of Canada's three core measures of inflation averaged 5.6 percent in December, down from 5.8 percent in November.
The average 12-month inflation rate averaged 6.7 percent in the fourth quarter, below the Bank of Canada's 7.1 percent projection.
The BoC's latest Business Outlook Survey published Monday showed firms still expect inflation to top the central bank's 2 percent target in the short term. However, they anticipate slower input and output price growth in response to declining commodity prices and weakening demand. As a result, businesses see inflation within the BoC's 1-3 percent target range within five years, with the 2-year expectation slightly below 3 percent. On the consumer side, the BoC's latest Canadian Survey of Consumer Expectations shows expectations for inflation five years from now are near survey-low levels. Combined with today's report, the data argue for a slowdown in the pace of tightening.
Market Consensus Before Announcement
Consumer prices are expected to fall 0.5 percent on the month in December for a year-over-year rate of 6.4 percent. October's comparisons are plus 0.1 and 6.8 percent.
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 the CPI and three measures of the underlying rate as the prime inflation indicators. Markets also look at core rate which excludes food and energy.
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 the CPI and three measures of the underlying rate as the prime inflation indicators. Markets also look at core rate which excludes food and energy.
