Canada: Retail sales and CPI in focus this week – ds BBH

Analysts a BBH suggest that in the second half of the week, Canada will report retail sales and CPI which are going to be the key economic releases for the Canadian economy this week.  

Key Quotes

“The reports will likely show less consumption and price pressures.  It may ease concerns, prompted by Bank of Canada officials, that the degree of accommodation is worth reconsidering.  Consumption jumped in Q1 (2.4 percentage points to 3.7% GDP, the most since the crisis) but appears to have eased here in Q2.  Retail sales rose 0.7% in March.  We know the fall in auto sales in April will be partially blunted by the rise in gasoline prices.  The risk seems to be on the downside in volume terms.”  

“The Bank of Canada recently suggested that the soft core inflation readings were the result of the lagged effect of excess capacity.  This implies that it expected higher inflation readings in light of the strong growth over the past few quarters.  However, the pass-through from stronger growth to higher prices may take longer than the market may suspect, which has increased the odds of a July rate hike from about 5% at the end of May to 45% at the end of last week.  The base effect and the electricity rebate (in Ontario) warn of downside risks.”