The Bank of Canada held rates unchanged at 0.5% with attention focusing on Governor Poloz’s accompanying statements and updated forecasts.
Poloz said that a rate cut was no longer on the table, amid signs of improvements in both domestic and global economic conditions, though remained dovish, stating “it is too early to conclude that the economy is on a sustainable growth path”.
The Bank revised its 2017 GDP forecast upward to 2.6% from 2.1%, however reduced 2018’s forecast to 1.9% from 2.1%. The initial forecast for 2019 called for a meagre 1.8% growth rate.
Inflation views were upgraded slightly, hovering close to the Bank’s 2% target in the near-term.
U.S. consumer prices and retail sales fall in march
U.S. consumer prices took a step lower in March, falling for the first time in more than a year. Headline CPI fell 0.3% in March, the first decline since February 2016. Inflation rose 2.4% relative to March 2016 but slower than the 2.7% annual rate in February when it reached a 5-year high.
The largest contributor to the decline was fuel costs. Core prices, which exclude the more volatile inputs, such as fuel, was down 0.1% for the month, its first monthly decline since January 2010. On an annualized basis, core prices were up 2%, slowing from 2.2% in the prior month.
Retail sales declined in March, falling 0.2%. March’s decline followed February’s 0.3% drop. Still, March retail sales were 5.2% higher from a year ago. Retail sales were weighed down by a 1.2% decline in the more volatile auto sector. Excluding the decline, retail sales were flat for the month.
Electronics and appliance stores experienced their strongest month in nearly two years in March, with sales rising 2.6%. Sales at clothing and accessory stores saw their fastest monthly increase since February 2016, up 1%. Non-store retailers, such as internet businesses, added 0.6% in sales for the month, up 11.9% from a year ago.
Canadian housing continues momentum
Canadian housing starts jumped to the highest levels in close to a decade, adding 253,700 annualized units in March. Single-family homes were marginally higher, though condos made up the majority of the advance.
Regionally, 7 of 10 provinces reported a rise in activity with British Columbia leading, while Atlantic Canada stumbled.
February’s new home prices rose 0.4% in February, doubling expectations. Prices are now 3.3% higher from a year ago, which is the fastest pace since 2010.
Not surprisingly, Toronto was the top contributor to price increases, up 8.6% annualized, with surrounding areas close behind. Select cities in Alberta and Saskatchewan continued to struggle.
Other Economic News
German inflation paused in March, up only 0.1%. The annualized rate of 1.5% was the first slowdown in nearly a year, though still hovering close to five-year highs. In France, prices rose 0.7% to an annualized rate of 1.4%. And in the U.K., CPI was unchanged at 2.3%, ahead of the central bank’s 2% target.
China’s inflation remains weak, declining 0.3% in March and prices only 0.9% higher year over year. The producer price index declined for the first time in seven months to 7.6%, though still close to nine-year highs. Positively, China’s trade balance came in stronger than expected, with a US$24 billion surplus, fully reversing the prior month’s deficit.
Canadian inflation and U.S. Housing
Canadian inflation will be reported on Friday, where we’ll find out whether prices continue their trend higher or conform towards the Bank of Canada’s dovish-tilted outlook. In the U.S., March’s housing data will be updated with both housing starts and existing home sales reported during the week. We’ll also be watching manufacturing PMI prints from the U.S., Eurozone and Japan.
France’s presidential election is now one week away from the first round of voting. Far-left candidate Jean-Luc Mélenchon has recently surged in advance surveys, now close behind far-right Marine Le Pen and independent Emannuel Macron. Republican Francois Fillon rounds out the top four candidates. With an estimated 40% of French voters still undecided, a number of scenarios are still in play for the April 23rd election.