Canada gets double blow on inflation, retail trade

Fri Feb 22, 2013 9:22am EST
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By Randall Palmer and David Ljunggren

OTTAWA (Reuters) - The Canadian economy registered its lowest inflation in more than three years in January and its largest decline in retail sales in almost three years in December, a double whammy of data that depressed the Canadian dollar and bond yields.

"All of this would feed into a dovish Bank of Canada and Canadian dollar weakness," said Camilla Sutton, chief currency strategist at Scotiabank.

Statistics Canada said on Friday that lower gas prices helped push the annual inflation rate down to 0.5 percent in January from 0.8 percent in December, the lowest since the 0.1 percent recorded in October 2009.

The rate is less than the 0.7 percent predicted by market analysts and farther outside the Bank of Canada's target range of 1 to 3 percent, offering further proof that the central bank is under no pressure to raise interest rates.

The Bank of Canada's closely watched core rate, which excludes the prices of items such as energy, tobacco and some food, slipped to 1.0 percent from 1.1 percent in December.

Sutton also noted with concern that on a seasonally adjusted basis, prices fell 0.1 percent in January from December.

The 2.1 percent fall in seasonally adjusted retail sales in December from November was far larger than the 0.3 percent decline predicted by market operators and suggested already muted expectations for fourth quarter growth might be too optimistic.

The monthly fall in retail sales was the greatest since the 2.4 percent decline recorded in April 2010. Trade was pulled down by slumping new car sales and a weak Christmas shopping season. Year on year, sales were down 0.7 percent, the worst since October 2009.   Continued...

People go shopping in the Eaton Centre shopping mall as they walk by a giant Christmas Tree in Toronto, December 7, 2012. REUTERS/Mark Blinch