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Low Inflation Likely Mitigates Future Interest Hikes

Canadian Retail Sales and Consumer Price Inflation - July 21, 2017

Canadian inflation, as measured by the Consumer Price Index (CPI), registered just 1 per cent in the 12 months to June. That is down from 1.3 per cent in May.   The Bank of Canada's new core measure of inflation, called CPI-common,  registered 1.4 per cent, a sight uptick from May.   In BC, provincial consumer price inflation was 1.7 per cent in the 12 months to June.  The trend in inflation in upcoming months will be crucial to the direction of monetary policy in Canada. If inflation continues to run well below the Bank's 2 per cent target, it is likely the Bank will move to the sidelines following a widely expected 25 basis point increase in the fall rather than embark on a more aggressive tightening cycle. 

Canadian retail sales increased 0.6 per cent on a monthly basis in May and were 7.3 per cent higher year-over-year. Sales were higher in 5 of 11 retail sub-sectors with the main contribution coming from motor vehicle dealers. With today's strong retail sales data, we are tracking second quarter Canadian real GDP growth at more than 3 per cent. In BC, consumer spending remained robust in May with retail sales rising 2.6 per cent on a monthly basis and 9.9 per cent year-over-year.