Weekly Economic Watch - June 25, 2013

Canada – The consumer price index rose 0.2% in May, half the pace expected by consensus. That caused the year-on-year inflation rate to rise to just 0.7% (consensus was expecting 0.9%). In seasonally adjusted terms, CPI rose 0.1%, as six of the eight broad categories saw price increases (alcohol/tobacco +0.7%, food +0.3%, transportation +0.1%, clothing/footwear +0.2%, shelter +0.1%, recreation/reading +0.2%), while prices declined for household operations (-0.2%) and health/personal care (-0.1%). The core CPI, which excludes eight of the most volatile items, rose 0.2% but was flat in seasonallyadjusted terms (also below consensus) allowing the yearon- year core inflation rate to remain unchanged at 1.1% (consensus was expecting an increase to 1.2%). On a 3- month annualized basis, core inflation is running at a soft 0.7%, while the headline is at an even milder -1.3%.

Retail sales rose just 0.1% in April following a flat print in the prior month. April’s result was a bit softer than the 0.2% increase expected by consensus. Nonetheless, sales increased in 6 of the 11 subsectors, including autos whose sales jumped another 1.4% after strong gains in the prior three months. Excluding autos, sales fell 0.3%, also softer than consensus which was looking for a flat print. The drag on ex-auto sales came primarily from gasoline (-2.9%), although there was also some weakness in sales of clothing/accessories (-1.9%), building materials (-1%) and home furnishings. Those more than offset the increases in sales of electronics, general merchandise, and sporting goods. The weakness in sales was entirely due to prices because in real terms overall retail sales rose 0.5%, after rising 0.6% in the prior month. Those two successive gains roughly erased the February slump in retail volumes.

According to the Canadian Real Estate Association, the number of homes sold via the MLS in Canada rose 3.6% in May. As a result, activity at the national level practically returned to where it was at before the new mortgage rules went into effect. Year on year, sales were down only 3.3% owing to the fact that sales had begun to decline back in May 2012 (seasonally adjusted data). Sales were up 8.4% in Vancouver, 6.7% in Edmonton, 13.3% in Regina, and 4.0% in Winnipeg. In Ontario, the sales increase was steeper outside the GTA (+5.1%) than inside (only +1.4%). Sales jumped sharply in Quebec as well, especially in Montreal (+5.4%), Gatineau (+9.5%) and Saguenay (+19.3%). The ratio of listings to sales (i.e., the number of months it would take to sell current inventories at the current rate of sales) stood at 6.4, down from 6.6 in April. In Montreal, the condo market continued to show a ratio of active listings to sales above 12 months, making it a buyers’ market. The same was true for the condo market in Quebec City.

In April, wholesale trade swelled 0.2%, shy of the 0.3% increase expected by consensus. Adding to the disappointment, the prior month’s performance was revised down two ticks to just +0.1%. Three of the seven subsectors recorded higher sales, led by machinery and equipment (2.6%) and personal and household goods (1.6%). These more than offset declines in the other categories, including autos (-1.9%) and farm products (-2.3%). In real terms, wholesale trade grew 0.4%.

Still in April, foreign investors added C$14.9 billion worth of Canadian securities to their portfolios. The net buying occurred above all in bonds (+C$7.8 billion), followed by money market instruments (+C$5 billion) and equities (+C$2.2 billion). As was the case in 2013Q1, corporate bonds accounted for most of the net bond purchases (+C$6.5 billion), followed by federal government bonds (+C$1.5 billion). These increases were offset slightly by the net selling of provincial bonds (-C$0.3 billion), a first in five months.

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