Canada's Consumer Price Index Dipped 0.1% MoM In May

– In May, Canada’s consumer price index,dipped 0.1% month over month, 0.2% in seasonally adjusted terms. Over 12 months, the all-items CPI was up 1.2%, compared with 2% the month before. Core CPI as measured by the Bank of Canada rose 0.2% in the month but was flat in seasonally adjusted terms. Compared with a year earlier, the core index was up 1.8%. Looking ahead, gasoline prices are down 2.4% in June and inflation from food, which accounts for 20% of core inflation in Canada, should be much lower than previously assumed. These developments combined with modest wage inflation (1.4% y/y in Q1 based on SEPH data) lead us to believe that the BoC’s rhetoric is likely to become less hawkish in the weeks ahead.

In April, retail sales fell 0.5%, far more than expected by consensus. Sales were down in 8 of the 11 subsectors. In particular, auto dealerships saw revenues decrease 1.2%. Excluding this segment, sales still sank 0.3%.

Real consumption growth slipped below 1% annualized in Q1 to a three-year low. Moreover, April's retail report suggests that consumer weakness has carried over into Q2. Indeed, based on only the first month’s data, Q2 retail volumes are tracking at a growth rate of -3.1% annualized, their weakest level since 2009 Q1. However, the relief enjoyed by consumers at the pumps in May and June  might translate into better retail sales in those months.

Still in April, wholesale trade rose a consensus-topping,1.5%. In real terms, it was up 1.3%. This should help offset soft factory sales in the month.

United States – In May, existing-home sales dropped,1.5% to an annual pace of 4.55 million units. The decline came on the heels of an upwardly revised pace of 4.62 million units in April. Distressed transactions as a share of existing-home sales fell to 25% from 31% a year earlier. This significant decrease was reflected in the median home price, which jumped 7.9% from the year before. Housing starts retrenched in the month as well, retreating 4.8% to 708K from an upwardly revised 744K in April. However, building permits sprang 7.9% to 780K from an upwardly revised 723K the prior month. The drop in U.S. housing starts needs to be placed into perspective, following as it did a very strong month. The sharp increase,in building permits suggests housing starts should bounce back sooner rather than later. In this regard, the NAHB home builders' confidence index for June recorded its highest reading in five years.

In June, the Philadelphia Fed index of manufacturing activity slid to -16.6, well below consensus expectations for a zero print. This marks the index’s lowest point since August of last year. The new-orders sub-index slumped to -18.8 and the shipments sub-index pegged in at -16.6. The employment sub-index, however, climbed marginally, returning into positive territory at 1.8. All in all, though, the Philly Fed index was undoubtedly very disappointing.

The FOMC released its latest economic projections. The central tendency GDP growth forecast (Q4/Q4) for 2012 was revised down to a range of 1.9% to 2.4% (from 2.4%,to 2.9% previously). Estimates were revised down also for,2013 (2.2%-2.8% vs. 2.7%-3.1%) and 2014 (3.0%-3.5%,vs. 3.1%-3.6%). The unemployment rate forecast for 2012 was revised higher to 8.0%-8.2% from 7.8%-8.0%. More than half of the FOMC members now saw rates remaining below 1% through to 2014 (compared with 41% in April),and Operation Twist, which was due to wrap up this month, was extended to year end, over which time an additional $267 billion will be shifted from short-term to longer-term Treasurys.