May 20, 2016 / 2:03 PM / a year ago

Fewer auto sales pull Canadian retail sales down in March

OTTAWA (Reuters) - Canadian retail sales fell more than expected in March as consumers bought fewer cars, underscoring expectations that the economy slowed heading into the second quarter.

Separate data from Statistics Canada on Friday showed the annual inflation rate rose to 1.7 percent in April, in line with forecasts. The core inflation rate, which strips out some volatile items and is watched by the Bank of Canada, was more robust, rising to 2.2 percent.

Nonetheless, neither report was expected to change the path of monetary policy, with the central bank widely expected to hold interest rates at 0.50 percent when it meets next week. BOCWATCH

“I don’t think it changes the big picture for either the dollar or the Bank of Canada,” Doug Porter, chief economist at BMO Capital Markets, said of the releases.

The Canadian dollar weakened slightly against the greenback immediately following the data. [CAD/]

The 1.0 percent decline in retail sales exceeded economists’ forecasts for a decrease of 0.6 percent, though February was revised slightly higher to a gain of 0.6 percent. In volume terms, sales in March declined 1.3 percent.

“The important point for retail sales was this followed two extremely strong months and I don’t think it takes away from the broader picture that the Canadian consumer has held up remarkably well so far in 2016,” said Porter.

Sales at car and parts dealers dropped 2.9 percent as Canadians bought fewer new and used cars. Excluding autos, overall sales were down just 0.3 percent.

Recent data, including Friday’s retail sales report, suggest the economy began to cool heading into the second quarter but first-quarter growth is still expected to have been relatively strong.

“Looking at Q1 as a whole, we’re still looking at above-trend growth in Canada,” said Andrew Kelvin, senior rates strategist at TD Securities.

The recent wildfires in Alberta that have disrupted oil production in the region are expected to further damp down growth in the second quarter, but economists expect to see a rebound in the latter part of the year.

The annual inflation rate was lifted as consumers paid more for food and shelter, while annual declines in energy prices moderated.

The increase brought the rate closer to the central bank’s 2 percent target, though the bank has said inflation is being influenced by temporary factors.

Additional reporting by Susan Taylor and Allison Martell in Toronto Editing by W Simon

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