Canada’s Q1 growth outperforms, increases the odds for rate hike
April inflation, released earlier this month, accelerated for the first time in 10 months to 4.4 per cent.
OTTAWA — Canada’s economy expanded faster than expected in the first quarter and likely accelerated further in April, data showed on Wednesday, increasing the odds for another interest rate hike by the central bank.
The economy expanded at an annualized rate of 3.1 per cent in the first three months of the year, Statistics Canada said, exceeding both analysts’ and the central bank’s expectations.
Real GDP was unchanged in March from February, better than a forecasted 0.1 per cent decline, and likely rose 0.2 per cent in April, the agency said.
The growth figures are the latest data illustrating the economy’s resilience despite a series of interest rate increases. April inflation, released earlier this month, accelerated for the first time in 10 months to 4.4 per cent.
“Both GDP and inflation are now outperforming the (central) bank’s expectations, further raising the case for another interest rate hike as soon as next week,” said Stephen Brown, deputy chief North America economist at Capital Economics.
The next policy announcement is due on June 7. Money markets are pricing in a 40 per cent chance of a hike next week, up from 28 per cent before the data, and they fully expect an increase of 25 basis points by September.
“I personally think next week is too early,” said Doug Porter, chief economist at BMO Capital Markets. “But I think (the Bank of Canada) will sound a pretty loud warning bell that they could hike rates again.”
Growth in the first quarter was more robust than the Bank of Canada’s 2.3 per cent annualized projection, and beat a median of analysts’ expectation for 2.5 per cent.
The central bank increased its key overnight rate by 425 basis points to 4.5 per cent between March of last year and January. It has since kept rates on hold, but warned that they could go higher.
The economy benefited from favorable international trade and growth in household spending in the quarter ended March, while slower inventory accumulation as well as a decline in housing investment were among moderating factors, Statscan said.
Exports of goods and services, led by cars and light trucks, rose 2.4 per cent in the quarter, outpacing a 0.2 per cent increase in imports.
Canadian households spent more on new trucks, vans and sport utility vehicles and on semi-durables like garments in the quarter, while spending on non-durable goods declined slightly.
Spending also picked up for food and non-alcoholic beverage services and alcoholic beverage services, the statistics agency said.
In April, Statscan said increases in sectors including mining, quarrying, and oil and gas extraction and transportation and warehousing likely partially offset declines in the wholesale and retail trade and public administration sectors.
The Canadian dollar strengthened after the data but was still down 0.2 per cent at 1.3630 to the greenback, or 73.37 U.S. cents, as oil prices fell.