| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| CPI - M/M | 0.0% | -0.1% to 0.2% | -0.1% | 0.3% |
| CPI - Y/Y | 2.0% | 1.8% to 2.1% | 1.9% | 1.7% |
| Core CPI - M/M | -0.2% | 0.3% | ||
| Core CPI - Y/Y | 2.4% | 2.5% |
Highlights
Canada's monthly inflation rate slowed more than expected in August, with the Consumer Price Index edging down 0.1 percent from July. Year-over-year CPI was up 1.9 percent. Forecasters in an Econoday survey had expected prices to remain flat on the month and rise 2.0 percent from a year earlier.
Although the headline CPI increased from 1.7 percent in July, core data showed signs of easing. Gasoline prices contributed the most to the headline inflation acceleration because they contracted less than in July. Still, the 12.7 percent drop in gasoline prices (after minus 16.1 percent in July) was the largest downward contributor to August inflation. When excluding gasoline, consumer price growth actually slowed to 2.4 percent from 2.5 percent in July.
Two of the Bank of Canada's own measures of core inflation also reflected easing pressures in August: CPI-common came down to 2.5 percent from 2.6 percent and CPI-trim came down to 3.0 percent from 3.1 percent. CPI-median was steady at 3.1 percent. The average of the three measures remained at 2.9 percent.
Excluding food and energy, August CPI retreated 0.2 percent from July and was up 2.4 percent from a year earlier, still above the 2.0 percent target. Goods prices were flat on the month and up 0.7 percent year-over-year, and services prices were down 0.1 percent and up 2.8 percent, respectively.
In light of the faster-than-expected deterioration in labor market conditions that have fostered expectations of a September rate cut, today's inflation report provides room for the Bank of Canada to act to support activity, with the headline inflation accelerating less than expected and core inflation showing signs of easing.
On a month-to-month basis, two of the eight major categories saw lower prices: transportation, down 0.3 percent, and recreation, education and reading, down 1.2 percent. Food prices were flat, shelter was up 0.1 percent and other categories were up between 0.2 percent and 0.3 percent.
On a year-over-year basis, transportation was the only category to post a decline, of 0.5 percent, driven by lower gasoline prices. Overall energy prices fell 8.3 percent from August 2024. Housing was the largest upward contributor, with rents up 4.5 percent and mortgage interest cost up 4.2 percent.
Seasonally adjusted monthly CPI was up 0.2 percent in August after edging up 0.1 percent. Excluding food and energy, the index was up 0.1 percent, the same as in July.
Although the headline CPI increased from 1.7 percent in July, core data showed signs of easing. Gasoline prices contributed the most to the headline inflation acceleration because they contracted less than in July. Still, the 12.7 percent drop in gasoline prices (after minus 16.1 percent in July) was the largest downward contributor to August inflation. When excluding gasoline, consumer price growth actually slowed to 2.4 percent from 2.5 percent in July.
Two of the Bank of Canada's own measures of core inflation also reflected easing pressures in August: CPI-common came down to 2.5 percent from 2.6 percent and CPI-trim came down to 3.0 percent from 3.1 percent. CPI-median was steady at 3.1 percent. The average of the three measures remained at 2.9 percent.
Excluding food and energy, August CPI retreated 0.2 percent from July and was up 2.4 percent from a year earlier, still above the 2.0 percent target. Goods prices were flat on the month and up 0.7 percent year-over-year, and services prices were down 0.1 percent and up 2.8 percent, respectively.
In light of the faster-than-expected deterioration in labor market conditions that have fostered expectations of a September rate cut, today's inflation report provides room for the Bank of Canada to act to support activity, with the headline inflation accelerating less than expected and core inflation showing signs of easing.
On a month-to-month basis, two of the eight major categories saw lower prices: transportation, down 0.3 percent, and recreation, education and reading, down 1.2 percent. Food prices were flat, shelter was up 0.1 percent and other categories were up between 0.2 percent and 0.3 percent.
On a year-over-year basis, transportation was the only category to post a decline, of 0.5 percent, driven by lower gasoline prices. Overall energy prices fell 8.3 percent from August 2024. Housing was the largest upward contributor, with rents up 4.5 percent and mortgage interest cost up 4.2 percent.
Seasonally adjusted monthly CPI was up 0.2 percent in August after edging up 0.1 percent. Excluding food and energy, the index was up 0.1 percent, the same as in July.
Market Consensus Before Announcement
Forecasters see CPI unchanged on the month and up 2.0 percent on year in August versus increases of 0.3 percent and 1.7 percent in July.
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.
