Canadian inflation and spending slows

Author: Portfolio Specialist Group

February 26, 2018

AGF Weekly Perspectives

“A recap of last week’s top economic news and what’s to come”

Annual inflation rate slows in Canada

  • Canadian inflation rose 0.7% in January, though the annualized pace slowed to 1.7%, from 1.9% previously, as a large gain in the same month last year rolled off the headline data. The decline was largely caused by a deceleration in energy prices to a pace of 2.4% annualized after growing 4.5% in December.
  • Food prices rose 2.3% annualized in January, the fastest pace in nearly two years, likely impacted by the minimum wage hike in Ontario as restaurants passed higher prices onto customers. Telephone services also rebounded with the largest monthly price increase since 1981 following aggressive discounting amongst retailers in the prior month.
  • The Bank of Canada’s three core inflation measures averaged 1.8% year over year in January, unchanged from December’s levels.

U.S. existing home sales slip

  • U.S. existing home sales slipped 3.2% in January, missing expectations for a modest gain. Sales volumes also fell below last year’s average and to levels last reached in September 2017.
  • The decline was concentrated in single-family home sales, falling 3.8%, whereas condo sales grew 1.6% in January.
  • While activity decelerated across all four regions to below year-ago levels, prices remain strong with an increase of 5.8% on average.

Canadian consumers reduce spending

  • Canadian retail sales disappointed with a 0.8% decline in December, though somewhat of a pullback was expected with the growing popularity of Black Friday deals pulling sales into November.
  • Electronics and appliance sales plunged 9.1% in December after reporting the strongest monthly gain on record in the prior month, and general merchandise sales fell 5.3% in December.
  • Overall, fourth quarter sales were strong with 3.8% annualized growth. Retail sales rose 6.7% in 2017, the fastest annual pace in 20 years. Volumes were also strong during the year with 5.4% growth, the largest increase since 2004.

Other economic news

  • Eurozone inflation continued its downward trend over the past three months, slowing to 1.3% annualized in January. A reduction in energy prices on a year over year basis caused a deceleration in headline inflation to levels last seen in July 2017. Positively, core inflation rose 1.0% higher from a year ago in January, a slight improvement from 0.9% in December.
  • The U.K. economy expanded 0.4% in the second estimate of fourth quarter GDP. The slight downward revision reduced calendar year GDP to 1.7% in 2017, the slowest pace of growth amongst all major economies. The U.K. also reported higher unemployment for the first time in nearly two years with the jobless rate ticking up to 4.4% in the fourth quarter, though still remains close to multi-decade lows.

What’s to come

  • Canada reports December’s GDP data next week to close out a year that saw robust growth through the first half of 2017 before slowing in recent months. Manufacturing activity for several regions including the U.S., China and Japan will also be reported throughout the week.

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Written by

Portfolio Specialist Group

AGF Investments Inc.

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