The CPI rose 2.0% year-on-year in August, the slowest rate since February 2021, and down from a 2.5% rise in July 2024.
The slowdown in headline inflation in August was partly due to lower gasoline prices, due to a combination of lower prices and the base year effect. Excluding gasoline, the CPI rose 2.2% in August, down from 2.5% in July.
Mortgage interest and rental cost remained the biggest contributor to the CPI increase in August.
On a monthly basis, the CPI fell 0.2% in August, following a 0.4% increase in July. The monthly decline was driven by lower prices for air transport, gasoline, clothing, footwear and tours. On a seasonally adjusted monthly basis, the CPI rose 0.1% in August.
12-month change in consumer price index (CPI) and consumer price index excluding gasoline are five key components contributing to the slowdown in the consumer price index for all commodities in August
Gasoline prices are the most contributing to the slowdown in the consumer price index for all commodities year-on-year, prices at the pump fell by 5.1% in August after an increase of 1.9% in July. This was due to a combination of the impact of the base year and current events, as prices on a monthly basis increased by 4.6% in August 2023 and fell by 2.6% in August 2024, the third monthly decline in four months. The decline in August 2024 was mainly due to lower oil prices. Crude amid U.S. Economic Concerns and Slowing Demand in China.
On a year-on-year basis, consumers paid a 2.4% increase in store-bought food prices in August after a 2.1% increase in July. This was a result of the impact of the base year, particularly from the prices of dairy products (+3.3%) and fresh fruits (+1.5%).
Factors affecting the monthly change of the Canadian CPI
The monthly change in Canada’s Consumer Price Index (CAD CPI m/m) is influenced by a variety of factors that reflect changes in the cost of goods and services purchased by consumers in Canada. Understanding these key factors can provide insights into what drives fluctuations in CPI and inflation levels. Here are some key factors that influence Canadian CPI readings m/m:
- prices: Oil prices: Canada is a major oil producer, and changes in oil prices can directly affect energy costs, which in turn affect the overall consumer price index.
- prices: Agricultural prices: Fluctuations in food prices, influenced by factors such as weather conditions, supply chain disruptions and global demand, can affect the consumer price index.
- costs: Rental and housing prices: Changes in rental costs, housing prices and related expenses play an important role in calculating the consumer price index.
- exchange rates: Exchange rate fluctuations: Changes in the value of the Canadian dollar compared to other currencies can affect import prices, affecting the overall consumer price index.
- levels: Labor costs: Changes in wages can affect production costs for companies, which may be passed on to consumers in the form of higher prices.
- Policies: Tax changes: Changes in tax rates or policies can directly affect prices and ultimately affect the CPI.
- chain disruptions: Production costs: Disruptions in the supply chain, whether due to logistical problems, natural disasters or other factors, can lead to changes in production costs and prices.
By closely monitoring these key factors and their impact on consumer prices, economists, policymakers, and market participants can better understand the factors driving changes in Canadian CPI readings on a monthly basis and make informed assessments about Canada’s inflation trends.
Investors’ strategies to respond to Consumer Price Index data
Investors often pay close attention to economic indicators such as the monthly change in the Canadian Consumer Price Index (CAD CPI m/m) because it provides insights into inflation trends. Here are some strategies investors can consider to respond to Canadian CPI data m/m:
1. Asset Allocation:
Diversification: Investors can adjust their asset allocation based on inflation expectations. Assets such as commodities, real estate, and inflation-protected securities may perform well during inflationary periods.
2. Currency Trading:
Currency Markets: Investors can trade the Canadian dollar based on CPI data. Positive CPI readings M/M may lead to a stronger CAD, while negative readings may lead to a weaker CAD.
3. Bond Investments:
Government bonds: Investors can adjust their bond portfolio based on inflation expectations. Inflation-related bonds (such as TIPS) may outperform traditional bonds during inflationary periods.
4. Investments in shares:
Sector turnover: Certain sectors, such as materials, energy, and consumer staples, may be more resilient to inflation. Investors can adjust their holdings accordingly.
5. Commodity:
Commodity markets: Investors can consider investing in commodities such as gold, silver, and oil as hedges against inflation.
6. Real assets:
Real estate: Real estate investments can act as a hedge against inflation as property values and rental income tend to rise with inflation.
7. Inflation-protected securities:
TIPSs: Treasury-issued inflation-protected securities adjust their original value based on inflation, providing protection against price appreciation.
8. Derivatives:
Options and futures: Investors can use options and futures contracts to hedge against or speculate on inflationary trends after the release of CPI data.
By using these strategies and staying on top of CPI data and its potential impacts, investors can make more informed decisions to effectively manage their portfolios in response to changing inflation trends in the Canadian economy.
