Slowing Car Sales Point to Gathering Softness in Canada Economy

Canada’s spring economic soft patch deepened as new car sales faltered and inflation remained stuck below the central bank’s target, adding consumer weakness to troubles in Alberta’s oil patch.

Retail sales fell 1 percent in March, faster than the 0.6 percent drop economists had forecast, Statistics Canada said Friday from Ottawa. Receipts at new car dealers decreased 3 percent, and sales of furniture, building materials and food and beverages also dropped.

“The retail data just shows there isn’t a lot of momentum in the Canadian economy as we headed into the second quarter, and we have the uncertainty of the shutdowns related to the Alberta wildfires,” Leslie Preston, an economist at Toronto-Dominion Bank, said by telephone.

Canada’s dollar touched a six-week low as Friday’s data added to the list of economic setbacks. The troubles range from a record trade deficit to falling business investment plans and raging wildfires that forced more than 80,000 people to evacuate the Alberta oil-sands hub of Fort McMurray. Those pressures will lead the Bank of Canada to keep its policy interest rate at 0.5 percent next week and reiterate the recovery needs time to unfold, Preston said.

Canada’s annualized economic growth will be limited to about 2.5 percent in the first quarter, and it may shrink as much as 0.5 percent between April and June, she said, adding the weakness will keep Bank of Canada Governor Stephen Poloz from raising rates this year and next.

Company Spending

Poloz makes his next rate-decision announcement on May 25. Global trade has reached a new “balance point” where it will contribute less to international growth than it did over the two decades before the financial crisis, he said in April. That’s making companies reluctant to invest.

Alberta was already reeling from low oil prices before this month’s wildfires shut down shut more than a million barrels a day of crude production. March retail sales in the province fell

0.9 percent, the sixth decline in seven months.

One relief for consumers is a drop in gasoline prices that gives them more money to spend or save elsewhere. Gasoline station receipts fell 1.1 percent to C$4.04 billion ($3.08 billion). It was the ninth straight decline and the dollar value was the lowest since August 2010.

Statistics Canada also said Friday the inflation rate accelerated for the first time in three months in April on higher food costs and a reduced drag from gasoline. The consumer price index rose 1.7 percent in April from a year ago following the prior month’s rate of 1.3 percent. Even with that gain, inflation hasn’t exceeded the Bank of Canada’s 2 percent price goal since October 2014.

Food Costs

The core inflation rate that excludes eight volatile products showed unexpected strength, quickening to 2.2 percent from 2.1 percent, while economists predicted it would slow.

Food costs made the biggest contribution to the inflation gain for April, rising 3.2 percent. Fresh vegetable costs increased 11.7 percent and restaurant meals rose 2.7 percent.

Those pockets of pressure are linked to the fading pressure of the Canadian dollar’s drop earlier this year, and don’t indicate a need to ease up on stimulus, economists said.

Canada’s dollar depreciated to about C$1.46 per U.S. dollar in January, the weakest in more than a decade. It has since rebounded, and traded at C$1.3115 at 11:34 a.m. Toronto time. The weaker dollar boosts the costs of imported items like food and clothes.

“The Bank of Canada will likely look through the uptick in inflation as a result of bigger disinflationary forces at work in the Canadian economy,” Derek Holt, Scotiabank’s vice-president of economics in Toronto, wrote in a research note. “The second quarter will be tough in Canada.”

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