| Consensus | Consensus Range | Actual | Previous | |
| CPI - M/M | 0.2% | 0.1% to 0.2% | 0.2% | 0.1% |
| CPI - Y/Y | 2.1% | 2.0% to 2.4% | 2.2% | 2.4% |
| Core CPI - M/M | 0.7% | -0.1% | ||
| Core CPI - Y/Y | 2.7% | 2.4% |
Highlights
Driven by lower gasoline prices, headline inflation came down to a 12-month rate of 2.2 percent in October from 2.4 percent in September, slightly higher than the 2.1 percent consensus in an Econoday survey of forecasters. It was still in line with the Bank of Canada's scenario, leaving the bar where it is for a further rate cut, that is, relatively high, especially with the core index, excluding food and energy, still above the 2 percent target at 2.7 percent year-over-year.
In its October Monetary Policy Report, the central projects a 12-month total inflation rate of 2.0 percent in the third and fourth quarters. In its minutes of the October 29 meeting, the BOC said Governing Council members agreed that" If new information led them to conclude the outlook had changed materially, they were prepared to adjust the policy interest rate." Against this backdrop, today's data don't change the overall outlook materially.
Inflation was up 0.2 percent month-to-month in October, as expected, for a core index up 0.7 percent.
The BOC's own core inflation readings showed signs of easing: while the CPI-common was stable at 2.7 percent, the CPI-median came down to 2.9 percent from 3.1 percent and the CPI-trim to 3.0 percent from 3.1 percent. The average of the three measured edged down to 2.9 percent from 3.0 percent. While it is progress, it remains almost a full percentage point above the central bank's 2.0 percent target.
In October, the main upward contributors to the 2.2 percent 12-month CPI increase were rent at 5.2 percent and cars at 4.1 percent. Mortgage interest cost was still among the top five at 2.9 percent.
Gasoline prices, down 4.8 percent on the month and 9.4 percent from a year earlier, were the main downward contributor to both the 12-month and monthly CPI. Excluding gasoline, prices were up 0.4 percent on the month and 2.6 percent year-over-year.
Services prices continue to put upward pressure, as they rose 0.7 percent from September and 3.2 percent year-over-year. By contrast, goods prices declined 0.3 percent on the month, led by nondurables, and increased 0.9 percent year-over-year.
Among the eight large categories, food, transportation, and health and personal care recorded lower prices on the month, while shelter increased 0.6 percent. The largest upward contributor to the monthly CPI was property taxes and other special charges, priced annually in October, which increased 5.6 percent.
On a 12-month basis, clothing and footwear was down 0.3 percent despite a monthly 1.3 percent increase. Prices increased for the other major categories, including a 3.4 percent gain for food, although this was slower than 4.0 percent in September. Amid ongoing housing affordability issues in Canada, shelter prices were still up 2.5 percent in October. Other home-related price gains included homeowners' home and mortgage insurance, up 6.8 percent, for a 38.9 percent jump since October 2020.
On a seasonally adjusted basis, prices edged up 0.1 percent on the month, down from 0.4 percent in September. Excluding food and energy, the index increased 0.2 percent in October after 0.3 percent in September.
Market Consensus Before Announcement
After last month’s upside surprise at 2.4 percent, forecasters see a more moderate 2.1 percent on year for October, mostly due to lower energy prices.
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.