Canada – The consumer price index rose a consensus-topping 0.8% in February. But because of base effects (recall CPI soared 1.2% in February last year), the year-on-year inflation rate fell four ticks to 1.1% (from 1.5%). In seasonally adjusted terms, CPI rose 0.3%, as five of the eight broad categories saw price increases. Price gains for food, shelter, transportation, recreation, alcohol/tobacco more than offset declines in prices for clothing/footwear. Prices for health/personal care products and household equipment were flat. The core CPI, which excludes eight of the most volatile items, rose a consensus-topping 0.7%. Here too, because of base effects (core CPI soared 0.8% in February 2013), the year-on-year core inflation rate fell two ticks to 1.2%. In seasonally-adjusted terms, core CPI rose 0.2%. On a 3- month annualized basis, headline inflation is running at 3%, while the core is at 2.7%, the hottest since April last year.
Part of that is due to food prices which are set to rise further in the coming months as the effects of the California drought are fully felt. But part of the hotter inflation also has to do with an economy that’s getting closer to potential after a strong second half last year (when real GDP grew at an annualized pace of close to 3%). Assuming seasonal patterns hold in March, Q1 yearon- year inflation is tracking 1.3% for both the headline and the core. Those are much higher than the Bank of Canada’s estimates from last January’s Monetary Policy Report which estimated Q1 year-on-year inflation at 0.9% for the headline and 1.0% for the core.
Retail sales jumped a consensus-topping 1.3% in January. Sales rose in 6 of the 11 subsectors including autos whose 2.2% advance erased much of the prior month’s drop. Excluding autos, sales rose 1.0%, also much better than expected by consensus. Retailers selling gasoline, furniture, electronics, building materials, food, general merchandise, all saw healthy gains. In real terms overall retail sales rose 1.4%. The overall picture for January is positive with a trifecta of volume gains in retailing, wholesaling and manufacturing, suggesting that GDP grew around 0.4% in the first month of 2014, i.e. making up for most of December’s weather-induced losses.
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