| Consensus | Actual | Previous | |
|---|---|---|---|
| CPI - M/M | 0.6% | 0.3% | 0.0% |
| CPI - Y/Y | 3.0% | 2.8% | 2.9% |
| Core CPI - M/M | 0.3% | 0.2% | -0.1% |
| Core CPI - Y/Y | 3.3% | 2.8% | 3.1% |
Highlights
Consumer prices in Canada rose 0.3 percent in February after being flat in January, but slowed to 2.8 percent from 2.9 percent year-over-year, both below expectations. Also coming in below forecasts is the ex-food ex-energy core which rose 0.2 percent on the month and 2.8 percent on the year, the latter down from 3.1 percent in January. The Bank of Canada's own core measures of inflation also came down, to 3.1 percent on average from 3.3 percent in January, with all three measures slowing.
With headline rates at 2.9 percent in January and 2.8 percent in February, the index is well on track to come in lower than the Bank of Canada's 3.2 percent first-quarter projection, although the BoC reaffirmed in its March policy statement that it anticipates inflation to remain close to 3 percent in the first half of this year. In light of the BoC's own expectations, February's update should bring relief, with both the headline and core indices within the 1 percent to 3 percent operational band.
Services prices in February rose 0.4 percent in the month and 4.2 percent year-over-year. Goods prices were up 0.3 percent and up 1.2 percent, respectively.
Food prices were flat on the month and up 3.3 percent year-over-year, and energy rose 2.8 percent and 1.3 percent, respectively. Gasoline increased 4.0 percent on the month and 0.8 percent from a year earlier.
Prices increased in four of the eight main categories on the month. Shelter continued to put upward pressure, as gains of 1.3 percent in mortgage interest cost and 0.8 percent in rent made them the third and fourth largest monthly positive contributors. Tavel tours and gasoline were the two largest contributors, while a 9.4 percent drop in internet access services was the largest downward contributor. Prices for clothing and footwear as well as household operations, furnishings and equipment, and alcoholic beverages, tobacco products and recreational cannabis decreased on the month.
On a 12-month basis, shelter was also the largest upward contributor as the mortgage interest cost was up 26.3 percent and rent 8.2 percent.
On a seasonally adjusted basis, the headline CPI edged up 0.1 percent in February, as did the core index.
With headline rates at 2.9 percent in January and 2.8 percent in February, the index is well on track to come in lower than the Bank of Canada's 3.2 percent first-quarter projection, although the BoC reaffirmed in its March policy statement that it anticipates inflation to remain close to 3 percent in the first half of this year. In light of the BoC's own expectations, February's update should bring relief, with both the headline and core indices within the 1 percent to 3 percent operational band.
Services prices in February rose 0.4 percent in the month and 4.2 percent year-over-year. Goods prices were up 0.3 percent and up 1.2 percent, respectively.
Food prices were flat on the month and up 3.3 percent year-over-year, and energy rose 2.8 percent and 1.3 percent, respectively. Gasoline increased 4.0 percent on the month and 0.8 percent from a year earlier.
Prices increased in four of the eight main categories on the month. Shelter continued to put upward pressure, as gains of 1.3 percent in mortgage interest cost and 0.8 percent in rent made them the third and fourth largest monthly positive contributors. Tavel tours and gasoline were the two largest contributors, while a 9.4 percent drop in internet access services was the largest downward contributor. Prices for clothing and footwear as well as household operations, furnishings and equipment, and alcoholic beverages, tobacco products and recreational cannabis decreased on the month.
On a 12-month basis, shelter was also the largest upward contributor as the mortgage interest cost was up 26.3 percent and rent 8.2 percent.
On a seasonally adjusted basis, the headline CPI edged up 0.1 percent in February, as did the core index.
Market Consensus Before Announcement
After January's better-than-expected cooling to 2.9 percent from December's 3.4 percent, consumer prices in February are expected to edge higher to 3.0 percent. The core rate is also expected to rise, to 3.3 percent from 3.1 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.
