Retail and CPI Data Bring Back Canadian Economic Doldrums

Updated on
  • Inflation and sales figures both trailed median forecasts
  • Benign price gains reflect continued slack, slow rotation: TD

Retail sales and inflation data came in weaker than expected on Friday, a reminder that Canada’s recovery still has a long way to go.

The consumer price index advanced 1.5 percent in December from a year earlier, and retail sales rose 0.2 percent, Statistics Canada reported Friday from Ottawa, both missing forecasts in a Bloomberg survey of economists. Three new measures of core inflation remained at or below 2 percent.

“Inflation is likely to remain benign over the next year, reflecting continued economic slack and a slow rotation in growth drivers,” James Marple, senior economist at TD Economics in Toronto, said in a note to clients.

Inflation hasn’t exceeded the Bank of Canada’s 2 percent target for about two years, a symptom of an economy awash in excess capacity. The central bank kept its benchmark interest rate at 0.5 percent Wednesday and policy makers said a rate cut remains on the table even as they look for another year of “solid” consumer spending to prop up growth. Recent reports had suggested the nation’s outlook was improving.

“The Bank of Canada has hung its hat on fiscal stimulus boosting the economy,” said Randall Bartlett, chief economist at the Institute of Fiscal Studies and Democracy, an Ottawa-based think tank. “They may be overly optimistic.”

Common CPI

The fact core inflation didn’t move even lower “should be some relief” to the central bank, Benjamin Reitzes, senior economist at BMO Capital Markets, said by phone from Toronto. Prices aren’t about to surge, he said.

The so-called common measure of core inflation advanced 1.4 percent -- up from the November pace of 1.3 percent, which was the slowest since 1996.

Bartlett forecasts the three core measures of inflation will remain below 2 percent through 2020.

Food prices fell 1.3 percent in December, with the third straight decline marking the most significant drop since the early 1990s, Statistics Canada said. Gasoline prices rose 5.5 percent, swinging from a 1.7 percent November decline.

The retail sales figures showed consumers still opening their wallets for the big-ticket items linked to the nation’s housing boom and the era of low interest rates.

Motor vehicle and parts dealer sales rose 0.8 percent, the third straight increase, led by new car dealers. Sales at building material and garden supply stores rose 2.9 percent, the most since the start of last year.

The gains aren’t as good outside housing. Sales rose in five of 11 major categories marking 45 percent of the industry total.

— With assistance by Erik Hertzberg

(Updates with economist quote in fifth paragraph.)
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