TORONTO — Canadian nominal retail sales rose by 0.2 percent in November, and follows a much stronger 1.2 percent increase in October and compares to an expected increase of 0.5 percent, RBC Economics reported today.
The overall nominal increase was restrained by falling prices in the month with the volume of sales rising a much stronger 0.7 percent which was up slightly from the 0.6 percent increase recorded in October.
The overall increase was in part attributable to a solid 0.8 percent gain in sales at motor vehicle dealerships. The month also solid gains in building material (2.9 percent) and furniture stores (2.0 percent) which Statistics Canada attributed to strength in home purchases and home renovation activity.
Some offset to the overall gain in nominal retail sales was provided by declines in gasoline stations (-1.0 percent), food and beverage stores (-0.5 percent) and clothing stores (-0.1 percent). The weakness in all of these components likely reflected declining prices. The latter component seemingly reflected greater than normal Christmas price discounting, said Paul Ferley, assistant chief economist.
“The solid rise in retail sales volumes follow indications that real manufacturing sales increased by a robust 1.2 percent in the month,” he added. “These increases bode well for November GDP to reverse the unexpected 0.3 percent decline in October GDP. This bounce back and earlier monthly increases point to Q4 GDP growth remaining positive rising an annualized 1.5 percent.
“This would be in line with the Bank of Canada’s forecast update provided on Wednesday with the release of the January Monetary Policy Report,” he explained. “That forecast also assumed the economy will grow at or above 2 percent through this year and next. The data to date does remain consistent with the central bank’s projection though the bigger test will be whether the pace of growth picks up at the start of this year.
“Confirmation of such would be consistent with our forecast that the Bank of Canada will hold policy steady with the overnight rate remaining unchanged at the current 0.50 percent throughout 2017,” said Ferley.
Governor Poloz commented this week that “a rate cut remains on the table” though such is only likely to be undertaken if concerns emerge as to growth failing to strengthen going forward.
“Today’s data should ease those concerns as it indicates solid momentum in consumer spending,” said Ferley.
Canada’s inflation rate rose in December, but by less than expected
Headline Consumer Price Index inflation picked up to 1.5 percent in December from 1.2 percent in November, short of market expectations for an increase to 1.7 percent, said Economist Josh Nye.
Much of the annual increase reflected a jump in energy price inflation, while lower food prices continued to provide some offset.
Canada’s headline CPI fell 0.2 percent on a monthly, unadjusted basis in December. Much of the decline reflected seasonal discounting for clothing & footwear (-3.8 percent) and travel services (-4.9 percent).
Food prices were flat in December although the annual rate slipped further into negative territory (-1.3 percent). A third consecutive month of year-over-year food price deflation is the longest streak since the early-1990s, and likely reflects both lower prices for agricultural commodities and fading base-effects from currency depreciation that boosted imported food prices a year ago, said Nye.
Higher energy prices provided some offset, rising 1.6 percent in the month and pushing the annual rate up to 4 percent in December from close to flat in November. Gasoline prices rose by 3 percent with oil prices having jumped higher in December on OPEC’s agreement to cap output.
The Bank of Canada’s three new core measures, first published by Statistics Canada last month, were little changed on balance. CPI-trim and CPI-median were steady at 1.6 percent and 2.0 percent, respectively―the latter having been revised up from 1.9 percent in the prior month. CPI-Common rose to 1.4 percent from 1.3 percent in November. The average of the three edged up to 1.7 percent from 1.6 percent in November, after rounding.
“Much of the increase in December’s headline inflation rate reflected a rise in energy prices in the month that contrasted with a decline in December 2015,” said Nye. “A similar base-effect is likely to play out in the next two months as substantial moderation in energy prices seen early last year is not repeated.
“The Bank of Canada’s updated inflation forecast assumes energy price base-effects will push the headline index close to 2 percent in the near-term, although with underlying inflation likely remaining below target due to excess capacity in the economy,” he explained, noting the bank did not provide explicit forecasts for its new core measures.
“Our forecast is for inflation to pick up more significantly this year ― above 2½ percent in the second half of 2017 ― as energy prices rise further and the Canadian dollar depreciates modestly,” said Nye.
“Even in our scenario, however, it is unlikely the bank would become concerned that inflationary pressure is emerging as energy and currency impacts will be viewed as temporary factors,” he explained. “Unless the bank’s new core measures begin to pick up more significantly, they will likely remain of the view that excess capacity is keeping price pressure subdued, arguing for a steady rate policy at the current, stimulative level.”
SOURCE: RBC Economics press release