U.S. inflation spikes higher, while Canadian home sales slump

Author: Portfolio Specialist Group

February 20, 2018

AGF Weekly Perspectives

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


U.S. inflation moves higher

  • U.S. consumer prices rose a sizable 0.5% in January, the largest monthly increase in five years. Inflation effects were broad-based with higher apparel prices leading the gains along with energy, food and medical care products.
  • On an annualized basis, headline inflation held above 2.0% for the fifth straight month with 2.1% growth in January.
  • Core inflation surged 0.3%, the largest monthly increase since 2005, reaching a ten-month high of 1.8% annualized. Core prices have moved sharply higher of late with the three-month annualized increase reaching 2.9%, the highest level since 2011.

Canadian home sales slump

  • Canadian existing home sales fell 14.5% in January, sharply reversing five straight months of sales growth to end 2017. A reversion was expected, however, as buyers pulled forward demand to end the year ahead of January’s new OSFI qualification rules.
  • 21 of 26 major Canadian markets reported negative growth in January, 15 of which suffered double-digit declines led by Ottawa, Hamilton and the Greater Toronto Area. New listings were also down a sizable 21.6%, most significantly in Ontario and British Columbia.
  • Average home prices fell 2.4% in the month as Toronto and Vancouver, two of Canada’s hottest and most expensive markets, saw their share of national sales decrease. Despite growing at the softest pace since December 2015, Canadian housing growth remains healthy with price increases of 7.7% year over year.

U.S. housing remains robust

  • U.S. housing starts grew 9.7% in January to the highest level in over a year as both single- and multi-unit segments advanced. All regions reported positive growth except for the Midwest, which was impacted by winter weather conditions during the month.
  • Building permits also beat expectations with a 7.4% jump in January to reach a post-recession high.
  • Permit volumes continue to trend higher than housing starts, which combined with tight supply, should lead to robust construction activity in the months ahead.

Other economic news

  • U.S. retail sales unexpectedly fell 0.3% in January, reporting the first pullback in five months. Additionally, December’s solid 0.4% gain was downwardly revised to a flat reading. Vehicle sales, building and garden equipment, and health goods declined in the month. Positively, year-over-year retail sales remain solid with 4.9% growth and tax relief should boost wages in February, leading to further growth.
  • The eurozone economy expanded 0.6% in the final quarter of 2017, confirming initial estimates of 2.5% growth for the year. It was the strongest pace of expansion since 2007 for the region. Japan also reported a 0.5% annualized rate of growth in the fourth quarter, marking the eight straight quarter of expansion.

What’s to come

  • The eurozone, Canada and Japan will report respective inflation levels during the week. Economists will be closely watching to see if recent U.S. price pressures are developing globally as well. The U.S., eurozone and Japan also report manufacturing activity during the week.

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Written by

Portfolio Specialist Group

AGF Investments Inc.

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