CANADA: Retail sales unexpectedly fell by 0.5% in December, with 9 of the 11 major subsectors registering declines, including a 0.9% drop for automobiles. Excluding autos, sales retreated 0.3% as a surge in gasoline procurement (+6.6% due to higher pump prices) and gains for sellers of building materials could not make up for deteriorations in all other categories. Most provinces saw lower sales in the month but, on a year-on-year basis, the big three provinces of Ontario, Quebec, and British Columbia continued to perform well, mustering growth on the order of 4.2%, 4.9% and 7.2%, respectively. In real terms, retail sales sagged 1.0% in the last month of 2016 after rising for five consecutive months. Despite declining volumes, real sales managed to grow a solid 4.5% annualized in Q4 thanks to solid employment creation in the quarter. This suggests that consumers made a healthy contribution to GDP growth in the closing quarter of 2016.
Wholesale trade rose 0.7% month over month to C$57.3 billion in December after growing a downwardly revised 0.1% in November. Sales were up for machinery and equipment (+2.5%), building materials and supplies (+1.4%), and farm products (+4.2%) but swung down for motor vehicles and parts (-2.1%). Excluding this last segment, sales progressed 1.4%. Across the country, sales were strong in Quebec (+2.9%), Alberta (+2.3%), and Saskatchewan (+4.4%) but weakened in Ontario (-0.2%) and Manitoba (-0.5%). The consumer price index (CPI) rose 0.9% in January, allowing the year-on-year inflation rate to increase six ticks to 2.1%. Note that this month’s number was amplified by the implementation of a carbon tax in Ontario and Alberta. In seasonally adjusted terms, CPI was up 0.7%. CPI excluding food and energy was up 0.6%, which allowed the year-on-year rate to rise four ticks to 2.2%.
In seasonally-adjusted terms, it rose 0.4% month over month. On an annual basis, the CPI-Trim stands at 1.7% (up from 1.6%), CPI-Median at 1.9% (unchanged) and CPICommon at 1.3% (down from 1.4%). Headline inflation has soared in January due to the implementation of a carbon tax in two provinces which lift significantly prices for natural gas (+10.2%), fuel (5.7%) and gasoline (+7.4%). CPI ex-food and energy and CPIEX8 were also strong, showing both a monthly increase of 0.4% after seasonal adjustments. Turning to the three new measures of inflation considered by the Bank of Canada more suitable for operational decisions, inflation looks tamer. By our own calculation, CPI-Trim rose 0.2% last month and was running at a pace of 1.6% annualized over the last three months. The CPI-median, rose 0.3% (m/m) and its 3-month annualized rhythm remains tepid at 1.4%. In other words, the surge in headline inflation in January to its highest annual level in more than two years is not a good gauge of the underlying inflation trend which remains relatively soft over the past few months. That being said, we continue to expect core CPI to speed up in 2017 on the back of stronger wage inflation and a renewed weakness in the Canadian dollar that could revive inflation via import prices.
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