The Consumer price index (CPI) rose 2.5% year-on-year in July, the slowest growth rate since March 2021, and down from a 2.7% rise in June 2024. The slowdown in headline inflation was broad-based, stemming from lower prices for tours, private vehicles and electricity.
On a monthly basis, the consumer price index rose 0.4% in July, after falling 0.1% in June. Gasoline prices rose month-on-month in July (+2.4%), putting upward pressure on the monthly CPI figure. On a seasonally adjusted monthly basis, the CPI rose 0.3% in July.
Change in consumer price index (CPI) and consumer price index excluding gasoline over 12 months Key inflation slows led by the shelter component Lower prices for travel-related services compared to last year
Tour prices topped the slowdown in the CPI for all items, falling 2.8% year-on-year in July, following a 7.4% increase in June. The decline was largely due to the impact of the base year, with tour prices rising 15.5% m/m in July 2023. Similarly, passenger accommodation prices (-3.7%) and air transport (-2.7%) fell year-on-year in July.
On a monthly basis, prices for tours (+4.5%), air transport (+8.4%) and passenger accommodation (+7.1%) increased in July.
Prices of private vehicles fell 1.4% year-on-year in July, following a 0.4% decline in June. This slowdown was driven by slower growth in new vehicle prices (+1.0%) with improved inventory levels compared to July 2023. Meanwhile, used vehicle prices fell 5.7% in July.
On an annualized basis, gasoline prices rose faster in July (+1.9%) compared to June (+0.4%). Prices have risen dramatically in Prairie counties, in part due to reduced supply amid the closure of a refinery in the Midwest of the United States.
Understanding Canada’s average CPI and its annual changes
The average Canadian CPI year-on-year refers to the annual percentage change in Canada’s median CPI.
Here’s what these metrics mean:
Average CPI: The average CPI is a measure of the central trend in the CPI. It calculates the change in the price of an average price good in a basket of goods and services, which helps to measure the direction of core inflation more accurately by minimizing the impact of anomalous price movements.
Year-on-Year Change: Year-on-year change refers to the percentage difference in the average CPI compared to the same month or period in the previous year. This metric provides insight into the inflation rate over a twelve-month period, highlighting how prices have changed over time..
Important: Monitoring the average Canadian CPI year-on-year is critical for policymakers, economists, and investors to understand the underlying inflation dynamics in the Canadian economy. Helps assess whether price changes are temporary or an indication of a more sustainable inflation trend.
Impact: Changes in the average Canadian CPI can affect the monetary policy decisions made by the Canada Bank. If the average CPI shows a continuous increase, it may indicate rising inflationary pressures, which could lead to adjustments in interest rates to maintain price stability..
Explanation: Canada’s positive year-on-year average CPI indicates inflation, while a negative figure indicates deflation. The rate of change in the average CPI can provide insight into consumer purchasing power, cost of living adjustments, and overall economic health..
Overall, the average Canadian CPI on an annual basis serves as a key measure for assessing inflation trends, providing valuable information for policymakers and market participants to make informed decisions about economic policies and investments in Canada.
Comparison between withholding and core CPI
Truncated CPI vs. Core CPI: Comparison
1. Definition:
- Truncate CPI: The withheld CPI excludes outliers in the CPI basket to provide a smoother measure of inflation.
- Core CPI: The core CPI excludes volatile items such as food and energy to capture the direction of core inflation.
2. Exclusions:
- Truncate CPI: Excludes certain components with extreme price changes, regardless of their category.
- Core CPI: Excludes volatile food and energy prices, which can fluctuate significantly from month to month.
3. Stability:
- Truncate CPI: aims to provide a stable measure of inflation by removing outliers.
- Core CPI: focuses on stability by excluding volatile components that can distort the rate of inflation.
4. Calculation:
- Trunced CPI: Removes a fixed percentage of outliers from both ends of the distribution.
- Basic CPI: Completely excludes certain categories from the calculation.
6. Influencing Policy:
- Brief Consumer Price Index: Provides insights into overall inflation trends, and influences policy decisions based on a more comprehensive inflation measure.
- Core Consumer Price Index: Provides a targeted view of inflation, often used by central banks to gauge underlying inflation pressures and make monetary policy decisions.
7. Market reactions:
- Brief Consumer Price Index: It can indicate ongoing inflation trends, affecting market expectations and policy expectations.
- Core CPI: focuses on long-term inflation trends, affecting market reactions and investor sentiment.
While both the abbreviated CPI and the core CPI aim to provide stable measures of inflation, they differ in their approach to excluding volatile components. The Short CPI provides a more comprehensive view by removing outliers across all categories, while the core CPI focuses on a specific set of volatile elements.
