Canada Consumer Confidence Falls on Finance Worries

Canadian consumer confidence fell for a third week, as optimism about personal finances dimmed to the lowest in almost a year.

The Bloomberg Nanos Canadian Confidence Index fell to 58.5 through June 20 from 58.7 the week before. The percentage of respondents who said their personal finances had improved over the past year fell to 17.0, the lowest since August.

Consumers are being pinched by increases in the costs of gasoline, food and electricity this year, pushing inflation to a two-year high. Crude oil costs have jumped because of fighting in Iraq that has created concern about future supplies.

The slide in consumer confidence is “primarily related to the state of personal finances,” said Nik Nanos, chairman of Nanos Research Group. That gauge “is currently scraping a 12-month low and is also below the six-year average,” he said.

Consumer prices advanced 2.3 percent in May from a year ago, the fastest pace since February 2012, Statistics Canada reported June 20. Energy costs advanced at an annual 8.4 pace for a second month.

The U.S., the world’s largest economy and consumer of about three quarters of Canada’s exports, is starting to move “on the road to reasonably solid recovery,” Finance Minister Joe Oliver said in an interview with Bloomberg Television in London. Oliver said he expects his country’s inflation rate to be around the 2 percent target set by the Bank of Canada.

Job Security

The survey-based Nanos index has two sub-indexes. The Pocketbook Index, based on responses to questions about personal finances and job security, fell to 58.9 last week from 59.3 in the last survey, the lowest since the beginning of February. The percentage of respondents who said they are “not at all secure” in their jobs rose to a three-month high of 8.2 percent, from 7.4 percent the week before.

The Expectations Index rose slightly to 58.2. The share of Canadians who expect the value of real estate to fall in their neighborhood over the next six months climbed to 12.2 percent last week from 11.1 percent, with the third straight increase bringing the reading to its highest since the start of April. Nineteen percent of people said the economy will be weaker over the next six months, down from 19.2 percent the week before.

Bank of Canada Governor Stephen Poloz said June 12 that the biggest domestic risk to the country’s financial system remains households with stretched consumer finances after a period of rapid homebuilding. Poloz also predicted a soft landing in the housing market and progress in Europe’s effort to ease its debt crisis.

Debt Perils

Other reports last week suggested that consumers are heeding the message about the perils of debt while they continue to spend. Statistics Canada said retail sales rose 1.1 percent in April led by automobiles, the fourth straight increase. The agency also reported the ratio of household debt to disposable income fell in the first three months of 2014, the second straight quarterly decline from last year’s record. Mortgage borrowing increased at the slowest pace in five years.

“The resilience of Canadian consumers is impressive, more so considering that elevated gas prices are squeezing household budgets,” Krishen Rangasamy, senior economist at National Bank Financial in Montreal, wrote in a client note.

Consumer sentiment may continue to decline as inflation rises, said Joseph Brusuelas, senior economist at Bloomberg LP, even with “Poloz’s insistence that the price rise is primarily due to temporary factors.”

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net

To contact the editors responsible for this story: Paul Badertscher at pbadertscher@bloomberg.net Chris Fournier

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