TORONTO — Nominal retail sales in Canada rose 0.7 percent, led by a 3.2 percent increase in motor vehicle sales with partial offset from lower food sales and a price-led drop in gasoline station receipts, RBC Economics reported.
Sales volumes jumped a stronger 1.2 percent following an upwardly revised 0.2 percent gain (was a 0.1 percent decline) in February, said Nathan Janzen, senior economist. E-commerce sales, not all of which are included in the headline retail sales numbers, surged 43 percent from a year ago, easily outpacing the increase in retail sales, he added.
The 1.2 percent jump in March retail sale volumes marked a third consecutive monthly increase — and eighth out of the last nine— to polish off a strong first quarter spending gain.
“Sale volumes in Q1/17 were up 8 percent from Q4 (at an annualized rate), somewhat surprisingly building on a 7.5 percent increase in Q4,” said Janzen. “The combined 2-quarter run is the strongest on record since the second quarter of 2004. The fundamental economic backdrop for households has generally continued to improve with strong growth in employment offsetting disappointingly modest wage growth to-date in 2017.
“Overall growth in the economy has also strengthened (we expect a 3.8 percent Q1 GDP rise) with early evidence suggesting that ongoing household spending strength was coupled with stronger business investment, he explained. “The Bank of Canada, however, will likely remain concerned by ongoing uncertainty about the future of Canada’s trading relationship with the United States and weak underlying inflation trends, including slowing growth in their preferred measures of ‘core’ CPI inflation in April also released this morning.
“The result is interest rates are likely to remain low even as labour markets and household incomes continue to improve,” said Janzen. “New regulatory measures may yet be successful at slowing housing market activity; however, absent a significant shock in labor markets, there is little reason to expect consumer spending growth trends to weaken significantly after already accounting for a record share of GDP in 2016.”
Canadian inflation rate steady in April; core rates edged lower
The year-over-year rate of headline CPI inflation was unchanged at 1.6 percent in April, while expectations were for a modest rise to 1.7 percent, matching the Bank of Canada’s second quarter forecast.
Energy price inflation picked up slightly to 9.6 percent year-over-year as higher gasoline prices continued to put upward pressure on headline inflation.
Food prices remained a source of downward pressure, though less so than in recent months as the most significant period of food price deflation in 25 years is gradually coming to a close.
Prices excluding food and energy were up just 1.5 percent from last April, the slowest rate in nearly three years, said Economist Josh Nye.
The Bank of Canada’s core measures averaged 1.4 percent, down from 1.5 percent in March. Both CPI-trim and CPI-median have fallen by 0.3 percent since the start of the year while CPI-Common is little changed.
“The expected rise in headline inflation did not materialize as a more modest pace of core inflation fully offset a further increase in energy prices and some easing in food price deflation,” said Nye. “Underlying inflation has clearly moderated so far this year — two of the Bank of Canada’s three core measures have declined, ex-food and energy inflation has slipped lower, and a diffusion index shows just 40 percent of CPI components are rising at 2 percent or faster, down from close to 50 percent two months ago.
“Softer inflation is surprising given strong economic growth in recent quarters, though a similar pattern is being seen in the labor market where robust job gains and a lower unemployment rate have been accompanied by slowing wage growth,” he added.
“Both inflation and wages seem to reinforce the Bank of Canada’s view that the economy has more room to run before inflationary pressure builds, and if anything, the recent dip in inflation might be seen as evidence that slack is slightly greater than their current estimate,” said Nye.
“Along with concerns surrounding the outlook for trade and investment, today’s inflation report will lend support to the Bank maintaining a cautious tone in their policy announcement next week, which we think will reinforce market expectations that a rate hike is unlikely this year,” he added.
SOURCE: RBC Economics press release