DISAPPOINTING NUMBERS
Retail sales and inflation both weak
The Canadian economy produced two batches of disappointing numbers Friday that experts said were certain to catch the Bank of Canada’s attention.
But despite unexpectedly weak inflation and retail sales data released by Statistics Canada, economists predicted the central bank will refrain from touching its benchmark interest rate.
The country’s annual inflation rate was 1.1 per cent in August as lower fuel prices dragged the reading to the lower reaches of the Bank of Canada’s target range. The result was below the 1.3 per cent yearover-year increase in July.
Inflation levels remained unchanged in both Alberta (0.7 per cent) and Calgary (0.6), according to StatsCan.
The federal agency also released fresh retail trade figures that showed total sales slipped 0.1 per cent in July, compared with the previous month. Revised figures showed that month-over-month retail sales were essentially flat in May and June after rising 0.8 per cent in April.
The sluggish July sales figures landed the same month the federal government distributed cheques to families under its revamped child benefit plan.
Experts like Bank of Montreal chief economist Doug Porter expect the Bank of Canada to take notice of both bundles of data.
“I would grade this one as a bit of an eyebrow raiser,” Porter said in an interview. “It’s always notable when you get two significant reports like this, both pulling in the same direction — and they both are on the weak side of expectations.”
Still, Porter said he didn’t think there was enough disappointment to force the bank to seriously consider changing the interest rate.
“But I think they probably will take a long look at both these reports with a bit of concern,” he added.
Statistics Canada’s retail data showed overall sales dipped slightly in July and totalled just over $44.1 billion. Seasonally adjusted sales in Alberta slipped for a third straight month, to $6.06 billion.
“Given the severity of the recession and the rise in unemployment, retail activity has actually held on surprisingly well,” ATB Financial chief economist Todd Hirsch wrote in a commentary. “Over the last 12 months, total sales are down about 3.8 per cent — not nearly what could be called a collapse.”
Across Canada, retail sales fell in five other provinces in July. The 6.9 per cent decline in New Brunswick and the 6.2 per cent drop in Newfoundland and Labrador in July coincided with increases in harmonized sales tax in both regions.
Economists had predicted inflation to ring in at 1.4 per cent in August, according to Thomson Reuters.
Desjardins senior economist Jimmy Jean wrote in a research note to clients Friday that by coming in under expectations the inflation rate is “preoccupying” for the Bank of Canada.
The August reading was near the bottom fringe of the central bank’s target range of one to three per cent.
Jean noted core inflation, which omits some volatile items like gasoline, fell below two per cent after five months above that level.