Canada Consumer Disappoints on Weak Retail Sales, Inflation

Canadian retail sales posted a surprise decline and inflation slowed, signs of fading consumer spending that had been propping up the economy.

Retail sales fell 0.1 percent in June compared with economist forecasts for a gain of 0.5 percent, Statistics Canada said Friday from Ottawa. In a separate report, the agency said annual inflation slowed to 1.3 percent in July, from 1.5 percent the prior month. Economists surveyed by Bloomberg had forecast annual inflation of 1.4 percent.

Slack in the world’s 11th largest economy has kept inflation below the central bank’s 2 percent target for almost two years, and the decline in retail sales fuels worries that consumer fatigue may have added to the economy’s woes in the second quarter.

Output was already on track to decline in the second quarter as wildfires in Alberta shrank oil production, leaving consumer spending as one of the few sources of growth.

“The retail sales number is a bit disappointing,” said Andrew Kelvin, fixed income strategist at Toronto-Dominion Bank. There was hope “for a bit more bounce back following the very poor economic data in May.”

Canada’s dollar weakened 0.7 percent to C$1.2870 per U.S. dollar at 8:40 a.m. Toronto time, breaking a nine-day rally.

Retail sales fell in seven of 11 categories making up 54 percent of the industry, Statistics Canada said.

Cheaper Gas

Cheaper energy is a big part of the inflation picture, the data show. Gasoline prices dropped 14 percent in July from a year ago, compared with a June decline of 8.5 percent, Statistics Canada said. Excluding gasoline, the inflation rate was unchanged at 1.9 percent.

The core inflation rate that excludes eight volatile products remained at 2.1 percent for a third month. Economists surveyed by Bloomberg forecast a core rate of 2.1 percent.

On a monthly basis, prices fell 0.2 percent in July from June. Core prices were unchanged during the month. Economists surveyed by Bloomberg predicted that both measures would be unchanged.

(Updates with analyst comment in fifth paragraph.)

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