Canada retail sales throw doubt on rate-hike

Growth in Canadian retail sales in April was lower than expected, undermining the widely-held view that a Bank of Canada interest rate hike in July is almost a certainty. Retail sales climbed 0.4 percent in April from March, largely on the strength of new car and gasoline sales, Statistics Canada said on Thursday.
Excluding the auto sector, which saw gains of 1.6 percent, sales were flat in the month. Analysts had forecast, on average, a 1.1 percent gain in overall retail sales and a 0.5 percent increase excluding autos. The weak April data followed a 1.8 percent jump in March retail sales, revised from 1.9 percent.
"While the final trigger remains the June employment report on July 6, I believe there are now decent odds that the Bank of Canada decides to leave the foot off the brake pedal at its July 10 meeting," said Andrew Pyle, investment executive at Scotia McLeod in Toronto.
The retail numbers followed weak data for wholesale trade and manufacturing shipments for April. But Doug Porter, deputy chief economist at BMO Capital Markets, argues the weak points in the report may be related to bad weather and feels sales are still on track for a strong performance in the second quarter.
"It thickens the plot a bit but I think what we've seen earlier should have cast more doubt than this," he said. Porter still thinks Canada is in for a rate hike in July.
The Canadian dollar dropped to about C$1.0713 to the US dollar, or 93.34 US cents, from levels around C$1.0680, or 93.63 US cents, before the retail sales figures were released.
In addition to autos, only two sectors posted gains in April - home furnishings and electronic stores as well as food and beverage stores, Statscan said. Building and outdoor home supplies stores posted the biggest decline. Red-hot consumer spending has motored economic growth this year but the central bank has also flagged it as a cause of inflationary pressure.
Core inflation, the figure used by the central bank in setting monetary policy, has stayed stubbornly above the bank's target of 2 percent since July 2006. Judging the economy to be growing at faster than its capacity, the bank telegraphed last month its intentions to raise interest rates for the first time in more than a year.
Most economists expect a 25 basis-point increase on July 10, moving the overnight rate to 4.50 percent. The retail report is the last piece of data on the economy April before the monthly gross domestic product figure is released on June 29. It also provides clues into the second-quarter growth figures.
Previous reports showed weak wholesale trade and manufacturing shipments and the loss of 5,200 jobs in the month, while core inflation spiked to 2.5 percent and new housing prices climbed. Most economists expect quarterly growth to come in strong but below the first quarter's 3.7 percent.