| Consensus | Actual | Previous | |
|---|---|---|---|
| CPI - M/M | 0.6% | 0.5% | -0.6% |
| CPI - Y/Y | 6.1% | 5.9% | 6.3% |
| Core CPI - M/M | 0.2% | -0.1% | |
| Core CPI - Y/Y | 4.9% | 5.3% |
Highlights
Consumer prices rebounded less than expected in January, as they were up 0.5 percent on the month, below Econoday's consensus estimate of 0.6 percent. The 12-month rate declined to 5.9 percent from 6.3 percent, below expectations of 6.1 percent.
Food prices were up 1.7 percent on the month and 10.4 percent year-over-year. Energy was up 1.3 percent and 5.4 percent, respectively. Excluding these volatile items, the CPI index increased 0.2 percent on the month and 4.9 percent from a year before.
Clothing and footwear fell 1.1 percent on the month and household operations, furnishings and equipment prices were down 0.4 percent. All other major categories posted monthly gains, with a 4.7 percent advance in gasoline, the main upward contributor, followed by mortgage interest costs (2.5 percent). The latter were the main contributor to the 12-month inflation rate as well, as they increased 21.2 percent from January 2022. Other housing-related categories were also among the top five upward contributors to the year-over-year inflation rate: rent prices, the fourth largest contributor, rose 5.8 percent and homeowners' replacement cost, the fifth largest contributor, increased 4.3 percent.
On a seasonally adjusted basis, monthly inflation increased 0.3 percent after remaining flat in December, but the core index rose at a slower monthly pace of 0.1 percent after 0.3 percent in December.
The Bank of Canada's three core measures of inflation averaged 5.6 percent in January, down from 5.7 percent in December. In its January Monetary Policy report, the central bank projected an average 12-month inflation rate of 5.4 percent in the first quarter. Governor Tiff Macklem said in a February 7 speech that rate hikes have been working, but that the current pause in tightening still depends on whether inflation continues to fall, with a projection of 3 percent in the middle of 2023 as growth stalls in the first half of this year."If new evidence begins to accumulate that inflation is not declining in line with our forecast, we are prepared to raise our policy rate further," he said.
The BoC should feel comfortable with today's data showing the 12-month inflation rate down to its lowest level since February 2022, with core prices excluding food and energy below 5 percent for the first time since April 2022.
Food prices were up 1.7 percent on the month and 10.4 percent year-over-year. Energy was up 1.3 percent and 5.4 percent, respectively. Excluding these volatile items, the CPI index increased 0.2 percent on the month and 4.9 percent from a year before.
Clothing and footwear fell 1.1 percent on the month and household operations, furnishings and equipment prices were down 0.4 percent. All other major categories posted monthly gains, with a 4.7 percent advance in gasoline, the main upward contributor, followed by mortgage interest costs (2.5 percent). The latter were the main contributor to the 12-month inflation rate as well, as they increased 21.2 percent from January 2022. Other housing-related categories were also among the top five upward contributors to the year-over-year inflation rate: rent prices, the fourth largest contributor, rose 5.8 percent and homeowners' replacement cost, the fifth largest contributor, increased 4.3 percent.
On a seasonally adjusted basis, monthly inflation increased 0.3 percent after remaining flat in December, but the core index rose at a slower monthly pace of 0.1 percent after 0.3 percent in December.
The Bank of Canada's three core measures of inflation averaged 5.6 percent in January, down from 5.7 percent in December. In its January Monetary Policy report, the central bank projected an average 12-month inflation rate of 5.4 percent in the first quarter. Governor Tiff Macklem said in a February 7 speech that rate hikes have been working, but that the current pause in tightening still depends on whether inflation continues to fall, with a projection of 3 percent in the middle of 2023 as growth stalls in the first half of this year."If new evidence begins to accumulate that inflation is not declining in line with our forecast, we are prepared to raise our policy rate further," he said.
The BoC should feel comfortable with today's data showing the 12-month inflation rate down to its lowest level since February 2022, with core prices excluding food and energy below 5 percent for the first time since April 2022.
Market Consensus Before Announcement
Consumer prices are expected to rise 0.6 percent on the month in January for a year-over-year rate of 6.1 percent. December's rates were minus 0.6 and plus 6.3 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.
