Canada – Retail sales fell 1% in March disappointing consensus which was expecting just a 0.6% decline. In March, sales fell in six of the 11 subsectors, including a 2.9% drop for autos/parts dealers. Excluding autos, sales fell 0.3% as declines in food/beverage, building materials, health/personal care, home furnishings and gasoline more than offset gains for sellers of electronics, sporting goods, clothing, general merchandise and miscellaneous items. In real terms overall retail sales fell 1.3%. Looking at provinces, on a year-on-year basis, PEI leads the way (+9.9%) followed by Nova Scotia (+9.1%), Ontario (+5.2%), and BC (+4.9%), while Alberta (-3.8%) remains last. The monthly decline in retail spending has to be looked at with caution given that it comes after outsized gains earlier. The drop in auto sales in particular is temporary because we already know (data from DesRosiers Automotive) that there was a sharp rebound in April, something that will lift overall retail sales in that month. Still, March’s declines in retail volumes coupled with earlier-reported softness in wholesaling and manufacturing, may leave GDP no better than flat in the month. The quarterly picture is, however, much better. Despite March drop, the first quarter is looking quite strong with regards to consumption spending.
Indeed, real retail sales grew more than 6% annualized in Q1 the best performance since 2014Q2. That’s in large part due to autos, although sales were also good excluding that category in Q1. The strong consumption coupled with significant contributions from trade likely lifted Canada’s GDP by 3% annualized or so in the first quarter.
The Consumer Price Index rose 0.3% in April, allowing the year-on-year inflation rate to rise to 1.7% from 1.3%. In seasonally adjusted terms, CPI rose 0.2% as 6 sub-components experienced gains while 2 were down. Transportation (+2.0%), healthcare (+0.7%), Alcohol/tobacco (+0.2%) and household operation s (+0.2%) experienced the strongest gains while prices were declining for recreation (-0.5%) and food (-0.3%). The core CPI, which excludes eight of the most volatile items, was up 0.2%, which allowed the year-on-year core inflation rate to rise to 2.2% from 2.1%. In seasonally-adjusted terms, core CPI was up 0.2%. Excluding food and energy, prices rose 0.2% in seasonally adjusted terms for April.
The Canadian CPI data for April was stronger than expected for a second consecutive month. Core CPI rose for a third consecutive month and as a result the 3-month annualized change stands at 2.5%. Keep in mind that there is a significant lag for the effect of a weaker currency (via import prices) on the CPI. This could be an explanation for this month’s performance as goods ex. food and energy rose 0.4% in April, while services inflation remains tame. This being said, we continue to think that the effect of the Canadian dollar should fade going forward.
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