| Consensus | Consensus Range | Actual | Previous | |
| CPI - M/M | 0.2% | 0.0% to 0.4% | 0.1% | -0.1% |
| CPI - Y/Y | 3.2% | 3.0% to 3.3% | 3.1% | 3.0% |
| Core CPI - M/M | 0.2% | 0.2% to 0.2% | -0.1% | 0.0% |
| Core CPI - Y/Y | 2.1% | 2.0% to 2.4% | 2.1% | 2.1% |
Highlights
Consumer prices increased at a lower pace than the consensus in an Econoday survey, with the headline index edging up 0.1 percent in September, below the 0.2 percent consensus, and the 12-month rate rising 3.1 percent versus the 3.2 percent expectation. This is still an acceleration from 3.0 percent in August.
Excluding food and energy, consumer prices contracted 0.1 percent on the month and rose 2.1 percent year-over-year.
The Bank of Canada had projected the 12-month inflation rate to average 2.5 percent in the third quarter, but with September at 3.1 percent, the average for the quarter is 3.0 percent, far above the central bank's projection. That being said, Governor Tiff Macklem has already warned that persistently high crude-oil and petroleum-product prices would push the Bank’s October inflation outlook “quite a bit higher” than its July projection.
The central bank is particularly focused on the extent to which persistently higher energy prices lead to a broadening of inflationary pressures across sectors. On that front, the 0.1 percent contraction in the monthly CPI excluding food and energy brings some relief. So does the CPI excluding gasoline, which also contracted 0.1 percent on the month, with a 12-month rate easing to 2.2 percent year-over-year down from 2.4 percent in August.
The central bank's own preferred measures of inflation also reflected easing inflationary pressures in September outside energy, as the average of CPI-trim and CPI-median edged down to 1.9 percent from 2.0 percent in August, for an overall average of 1.9 percent in the third quarter.
This still leaves some room for the Bank of Canada to look through higher energy prices, although Macklem has already signaled that it was becoming harder the longer energy prices remained high.
The central bank is also operating in an international environment where the Fed and the ECB both raised rates in September.
Goods prices were up 0.6 percent on the month and 3.7 percent year-over-year, in September, and services were down 0.3 percent and up 2.6 percent, respectively.
Unsurprisingly, gasoline prices, up 6.1 percent on the month, were the top upward contributor to the monthly CPI, while air transportation, down 10.0 percent, was the largest downward contributor.
On a 12-monthly basis, gasoline, up 27.8 percent, was also the largest upward contributor, while homeowners' replacement cost, down 1.9 percent, was the largest downward contributor.
Of the eight main categories, recreation, education and reading, health and personal care, and food, all contracted on the month, while other caterories increased. On a 12-month basis, all eight categories saw higher prices.
The seasonally adjusted CPI rose 0.4 percent on the month, up from 0.3 percent in August. Excluding food and energy, the index edged up 0.1 percent, a slowdown from 0.3 percent the previous month, confirming that outside volatile components, core inflation eased on the month.
Market Consensus Before Announcement
CPI is expected to show the effect of increasing energy prices while food prices fall back. The consensus sees total CPI up 3.2 percent on year versus 3.0 percent in August. The core is seen flat at 2.1 percent with not much spillover from energy into other segments yet but everyone is watching airfares.
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.