Canadian Retail Sales On Wednesday May Be The First Wake-Up Call

Consumer price growth increased within a context of rising consumer confidence and improving employment conditions as COVID-19 restrictions eased in many regions of the country. ADP Nonfarm Employment rose to 634.8K in March last week. The number of employed people rose primarily because of the easing of restrictions. Importantly, the easing of restrictions occurred before the pandemic`s third wave began in Canada. This creates risks of re-tightening for the business, so many companies will delay expanding and hiring new employees. As a result, employment growth may slow down in April.

As you can see from the graph, CPI excluding energy grew less significantly, which indicates a high share of the oil prices growth in the March inflation jump. It is an external risk that is difficult to control. It will be heavy for oil prices to rise above $70 per barrel in the current situation. Global oil demand growth is unlikely to be a sufficient driver, given that before the pandemic, the Brent was in the same range. But there are plenty of drop oil risks, for example, the possible lifting of sanctions against Iran.

The average Brent oil price in February-May 2020 was approximately $41, down from $65 in January. This decline in oil prices led to the decline in inflation in the 0.7-1.0% range in the same period. Based on this, Brent’s decrease to $50 will lead to a decrease in CPI by 0.5-0.7% from current levels. It will reduce inflation expectations and may lead to an economic forecast change.

At the same time, some indicators in the inflation index structure concerns about the growth of retail sales. In March, “commodity prices” rose 0.8%, while “transportation prices” rose 1.2%. It suggests the increase in the “goods prices” includes an increase in transportation costs. This fact gives grounds for a more pessimistic view of retail sales growth rates.

February retail sales data is scheduled to be released on April 28th. According to the consensus forecast, retail sales rose 4.0% in February after falling 1.1% in January.

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Disclaimer: This material contains general commentary only and is not intended to constitute or be relied upon as personal financial advice. To the extent that this material contains any general ...

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