The Consumer Price Index (CPI) tracks the cost of everyday essentials like housing, food and transportation change over time for Canadians. It’s a key measure for inflation and a signal for policy shifts on interest rates.
The next report is expected this week, and here’s a recap of what’s expected and what that means.
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Where we last left off
The last CPI update was released back in September, encompassing information for the month of August. That report outlined several key indicators for inflation.
Specifically, food inflation came in at 3.4% year over year, while core inflation (which excludes volatile items) came in at 2.6% year over year.
In short, inflation was shown to be easing, but still above the key 2% target established by the Bank of Canada. This means that some policy adjustments could be coming, both this week and later this year.
That brings us to the next CPI report set to be released this week, and the companies set to be impacted by any adjustment in policy.
What to expect from September’s Consumer Price report
Fortunately, investors won’t have long to wait for that next report. The next CPI report, which includes data for the month of September, is set to be released this week on October 21.
Apart from the changes to inflation, investors will be on the lookout for any shift to interest rates. If inflation rises beyond that 2%, the Bank of Canada may move to raise interest rates to cool inflation. If rates do rise, it could provide an opportunity for investors to move towards dividend growers in specific fields such as energy and consumer staples.
Analysts are expecting the inflation number to edge slightly up at or just over the key 2% figure.
What does the Consumer Price report mean for Canadian investors?
Some stocks could be impacted more than others. If we see inflation rise slightly, that could be a positive for financial stocks such as TD Bank (TSX: TD).
TD is the second largest of Canada’s big bank stocks. TD boasts a growing branch network in the U.S., where it stretches from Maine to Florida with over 1,100 branches. Stable inflation or even a small bump could propel loan growth.
Specifically, TD’s net interest margin could expand if rates rise, boosting profitability across its loan book. The bank’s massive U.S. footprint also exposes it to a broader rate environment, furthering that resilience.
Given its tasty dividend (currently 3.78%) and strong payout history, TD is a core pick for income-focused investors.
If we see inflation rise more than expected, materials such as gold miners, specifically Barrick Gold (TSX: ABX) could also see a bump. Precious metals are perceived as safe stores during times of market volatility, and that boost in demand could drive Barrick (which has posted strong gains this year) up further.
In short, gold shines brighter when inflation expectations rise or interest rates fall. Barrick balances low-cost operations and a strong balance sheet to make it a beneficiary of that change. With gold prices surging this year, Barrick’s stock price has already surged and could continue to rise further.
However, if inflation stays under 2%, that could benefit utility stocks, such as Fortis (TSX: FTS). Utilities like Fortis generate a stable and recurring source of revenue that benefits from lower borrowing costs and bond yields.
Those lower borrowing costs support Fortis’s massive capital-intensive infrastructure projects. That attracts investors seeking steady income as those rates fall. Throw in over 50 consecutive years of dividend increases, and you have a reliable, resilient force that is hard to ignore.
Final thoughts: Diversification still wins
The one thing that all investors can agree on is that no matter which way the CPI moves, the need for a well-diversified portfolio has never been more critical.
