WRAPUP 1-Canada retail sales unexpectedly drop, inflation steady

Fri Nov 20, 2015 9:49am EST
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By Leah Schnurr

OTTAWA Nov 20 (Reuters) - Canadian retail sales disappointed in September, pointing to soft growth heading into the fourth quarter, while inflation was benign in October, suggesting the central bank will keep monetary policy on hold next month even if U.S. rates rise.

Retail sales unexpectedly fell by 0.5 percent due to lower gasoline prices and a decrease in sales at motor vehicle and parts dealers, data from Statistics Canada showed on Friday.

Economists had expected a gain of 0.2 percent. Excluding the effect of price changes, sales volume edged up 0.1 percent.

"This is a soft end to the quarter for retail sales," said Soctiabank economist Derek Holt. "The slight volume gain was mildly encouraging but the breadth of the declines reinforced the headline weakness."

Gasoline station sales tumbled 3.7 percent, to their lowest since January as consumers paid lower prices at the pump. Motor vehicle and parts sales dipped 0.5 percent, ending seven months of gains.

Canada was in a mild recession during the first half of the year. While growth likely picked up in the third quarter, recent data pointed to a decline in growth in September.

That suggests the risk recovery will not be as strong as policymakers had anticipated, said Doug Porter, chief economist at BMO Capital Markets.

"The third quarter was a mild rebound from the weakness that we saw in the first half of the year, for a variety of reasons, but it looks as if the sluggish underlying trend has reasserted itself here in the fourth quarter," he said.   Continued...