Inflation, retail sales numbers bring glad economic tidings for Christmas season
OTTAWA — North American consumers are showing signs of emerging from
hibernation in time for Christmas, pushing up inflation in Canada to a new
two-year high and improving growth prospects for both economies.
Canada’s inflation rate rose a surprising half-point to 2.5 per cent in
October, a sign the economy is not facing the imminent risk of a deflationary
slump.
In conjunction with price firmness, Statistics Canada also reported Tuesday
that retail sales jumped 0.6 per cent in September as consumers bought more cars
and spent more on sporting goods, clothing, books and music.
The strength of the consumer was also evident south of the border, where the
third-quarter gross domestic product was revised to 2.5 per cent from a
previously reported two per cent.
The three data points are positive indicators for the North American economy
— which had been under pressure over the past few months — and for retailers
with Christmas shopping season approaching, said Douglas Porter, deputy chief
economist with BMO Capital Markets.
“Today’s numbers do suggest the economy had a little more underlying
momentum than previously believed,” he said. “The consumer spending numbers
are not rock-and-sock’em, but they are solid.”
TD Bank’s chief economist Craig Alexander also doubted the better consumer
spending data signalled a return to “booming” sales, saying the increase
should be kept in context.
But the improvement was welcomed in Canada given recent soft data in other
sectors of the economy, particularly manufacturing, exports, housing and
employment.
Analysts were bracing for a potential drop in gross domestic product in
September, but the retail numbers now suggest the month will come in positive.
And analysts now think Canada’s third quarter will see the economy
advancing at about 1.5 per cent, below the two per cent growth of the second
quarter but in line with the Bank of Canada’s expectations.
While that is one percentage point less than the U.S., CIBC chief economist
Avery Shenfeld cautioned Canadians against making the comparison, since the
American economy is starting from a much deeper hole.
“We have not had as deep a disinflationary trend as the U.S. and that’s a
sign we’re not as many miles below full employment as the U.S.,” he said.
“They have a lot more catching up to do,” he added.
The key difference, say analysts, is that while Canada has recouped all the
jobs lost during the 2008-09 recession, the U.S. has only brought back about 15
per cent of the almost nine million jobs that vanished.
Still, nothing in Tuesday’s numbers changes the established picture that
the recovery will continue to be a long, arduous slog before the conditions
return to the robust growth and strong job creation levels that existed prior to
the crisis.
“Given all the concerns that continue to swirl around the global economy, I
don’t think we should let down our guard just yet,” Porter said.
Analysts said it is unlikely the one-month consumer price jump will scare
Bank of Canada governor Mark Carney into raising
interest rates in the near future, in part because inflation is expected to
moderate.
Breaking down the numbers, Statistics Canada said higher energy costs were
responsible for about half of the inflation increase, but most things were
noticeably higher in October.
Transportation costs rose 4.6 per cent, while shelter costs increased 2.8 per
cent. Other gains included food, up 2.2 per cent, electricity 8.1 per cent, cars
4.9 per cent, car insurance 4.6 per cent, and property taxes by 3.5 per cent.
There were still some bargains, however. Clothing and footwear edged down 0.1
per cent from last year, mortgage interest costs retreated by three per cent,
the price of computer equipment and supplies dropped 12.5 per cent, and air
transportation and furniture were also lower.
Regionally, the two harmonized sales tax provinces continued to have among
the highest inflation rates in the country, with Ontario leading the way at 3.4
per cent, half-a-point higher than in September, and British Columbia at 2.4 per
cent.
The Canadian Press
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