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Spending habits shift Canadian consumers are shifting their spending to help pay more for gas and food.
Readings from Statistics Canada today on inflation and retail sales suggest the price surge at the pump, and the increase in food costs, is taking money from elsewhere in household budgets.
Though the monthly pace of price increases slowed, we're still paying much more from a year ago, according to the federal agency's consumer price index, which clocked annual increases at 3.3 per cent in April, a tad below what economists expected.
"Tell the average Canadian that CPI in April was 'weaker than expected' and you may elicit blank stares," said economist Emanuella Enenajor of CIBC World Markets.
"Indeed, prices were up 3.3 per cent annually, just a tick below consensus. But the above-target pace of price gains, driven by food and energy, still suggests Canadians are paying more to fill their gas tanks and bellies."
You've got to look at both reports together to get a clearer picture.
While the pressures of inflation eased slightly in April after a surge in March, gas prices climbed markedly. And while food prices retreated somewhat, they remain elevated from last year. Separately, the report on retail sales indicates where money is going, and where it's not.
"While a late Easter and dreary weather may have had an impact on March sales, Canadian consumer spending is clearly losing some momentum as prices at the pump and grocery store move higher, while borrowing cools," said economist Robert Kavcic of BMO Nesbitt Burns.
Overall, according to Statistics Canada, retail sales were flat in March, though in volume terms fell 0.8 per cent when the effects of price fluctuations are taken out.
Sales climbed in four sectors including the gas pump, and fell in seven others.
"The largest increase, in dollar terms, among the subsectors was registered at gasoline stations (+1.4 per cent)," Statistics Canada said. "This was the eighth increase in nine months. Sales at gasoline stations have been trending upward for the past two years."
Sales were also up at department stores, car dealerships, and electronics and appliance shops. They fell at furniture stores, clothes retailers, and food and beverage shops, though the latter was largely because of slower sales at beer, wine and liquor stores. Sales at grocery stores were up.
Sales have been sluggish for several months, noted CIBC World Markets economist Krishen Rangasamy.
"Canadians are spending more to fill up their cars, and of course there's less to spend on everything else," he said.
What the inflation reading indicates Consumer prices rose 0.3 per cent in April from March, a slower pace than the 0.8-per-cent increase a month earlier, leaving the Bank of Canada in a position to hold interest rates steady as it watches how global developments play out.
On an annual basis, prices climbed 3.3 per cent in April, matching the March rate. Again, prices at the gas pump were the main culprit, surging 26.4 per cent from a year earlier to sit just 5 per cent their July 2008 peak. Take out energy, and overall consumer prices were up 2 per cent on the year.
Though costs in other key areas like food dipped in April, they remain higher from a year earlier in seven of the eight components of the consumer price index. The only exception was clothes and shoes, Statistics Canada said.
The so-called core rate, which excludes volatile items and guides the Bank of Canada, slowed to a monthly pace of 0.2 per cent from 0.5 per cent, and an annual pace of 1.6 per cent from 1.7 per cent.
"Overall, the results won't have much in the way of impact on the Bank of Canada's upcoming decisions, as core inflation is still very close to its 2-per-cent target if one adjusts for the over-compensation for HST reform in the core measure," said CIBC World Markets chief economist Avery Shenfeld.
The surprise in the measure, Mr. Shenfeld said, came partly because food costs unexpectedly fell on a seasonally adjusted basis. They fell 0.2 per cent after a hefty jump in March, marking the first dip in five months. Costs for clothes also slipped.
Economists are trying to guess exactly when Bank of Canada Governor Mark Carney will boost interest rates again. Some are betting on July, others on September, or even October.
"Despite a somewhat uneventful consumer price report today, inflation trends are still hotter than what the BoC has been expecting - albeit much more so in the case of headline inflation rather than core, which remains below their 2-per-cent target," said Mark Chandler and Kam Bath of RBC Dominion Securities.
"Despite a slight upward drift in inflation expectations, the bank still considers them to be 'well anchored,.'" they said in a research note.
"With absolutely no chance of a May 31 rate increase in play, the bank can continue to provide little direction on the timing of future rate increases (indeed, Governor Carney's well-publicized comments this week suggest that there is little need to provide guidance on this score) and a July rate hike is still in play with strong GDP and employment trends (and still our official call). However, at this stage, we'll need more help from deteriorating inflation expectations (and wage pressures as well) to make this more of a probability."
What's the outlook?
"Overall, we expect headline inflation to moderate from its hot pace of above 3 per cent to move more in line with the Bank of Canada's target of 2 per cent over the next year," said economist Diana Petramala of Toronto-Dominion Bank.
"Meanwhile, core inflation will likely only gradually trek back up to the Bank of Canada's target by mid-2012. With core inflation currently below the Bank of Canada's target, and with a number of downside risks to inflation still looming we believe the Bank of Canada will remain on the sidelines until September of this year, and only gradually tighten monetary policy thereafter."
- Inflation holds at 3.3 per cent on high gas costs
- In private, Mark Carney offers a less rosy outlook
Putting more money into homes Canadians are putting a larger portion of their earnings toward their homes, Royal Bank of Canada says in a quarterly study released today, and interest rate increases are likely to put further pressure on homeowners in the coming months.
The problem is especially pronounced in Vancouver, where the bank estimated families must now dedicate 72 per cent of their household income to pay the mortgage, property taxes and utilities on a bungalow, Globe and Mail real estate writer Steve Ladurantaye reports. That's much higher than Toronto, where it would take 47.5 per cent.
Greek yields surge Beware of Greeks bearing bonds at 16.75 per cent.
Yields on 10-year bonds surged today to that record level as European authorities continue to argue over what happens next in the Greek debt crisis. Many officials, including those at the European Central Bank, don't want a restructuring of Greek debt, while there have been suggestions from others for a "soft restructuring" that would push out maturity dates.
Spanish yields also rose.
"The ECB's threat to pull funding for Greek banks in the event of any type of restructuring is an indication of the fears the bank has of a contagion effect being set off throughout the European banking system," said CMC Markets analyst Michael Hewson.
IMF adopts guidelines It took a while, but the International Monetary Fund has come into the modern era where office relationships between bosses and staff are concerned.
Yesterday, the IMF announced changes to its code of ethics, which it said was approved in early May, before allegations were made against former chief Dominique Strauss-Kahn.
"A close personal relationship between a supervisor and subordinate presents a potential conflict of interest and must be reported and resolved, usually by reassignment of one of the individuals to a different work unit," IMF spokesman William Murray said in a statement.
He added that any failure to report and resolve potential conflicts amounts to misconduct and would be grounds for discipline.
"If found to exist, harassment is grounds for disciplinary action up to and including dismissal," Mr. Murray said.
Several years ago, Mr. Strauss-Kahn admitted to an affair with Piroska Nagy, an economist and senior official who left the fund in the summer of 2008. The group probed the issue, finding that Mr. Strauss-Kahn did not abuse his power but that he did show an error in judgment.
Mr. Strauss-Kahn is now charged in New York, accused by a hotel maid of sexual assault. He has resigned as IMF chief, and has denied all of the allegations. No charges have been proved in court.
- Strauss-Kahn gets jail, but legal troubles have just begun
- Chrystia Freeland: Dominique Strauss-Kahn and a rush to judgment
- France's Lagarde the favourite to lead IMF
TD boosts Quebecor Toronto-Dominion Bank is more upbeat on the outlook for shares of Quebecor Inc. in advance of the media company's earnings next week.
TD Newcrest analyst Vince Valentini boosted his price target on the stock to $42 to from $40, and his recommendation to "buy" from "hold."
"We do not expect particularly strong Q1 results on May 26, but the recent relative weakness in [Quebecor]hares gives us confidence that expectations are sufficiently low heading into the quarter, so we are not waiting for the results to upgrade the stock," Mr. Valentini said in a research report.
"The 11-per-cent decline in [Quebecor shares year-to-date]is by far the worst performance in our coverage universe ... the stock has materially underperformed Canadian and U.S. peers since May of last year, on both a share price and EV/EBITDA multiple basis."
In International Business today
Power outages are a key reason for Nigeria's status as the "sleeping giant" of Africa. Its population of 150 million is by far the biggest on the continent. It is blessed with oil, mineral resources, farmland, a bustling seaport and an entrepreneurial culture. Yet the vast majority of its population lives in poverty, its government is corrupt, and its infrastructure is crumbling. But that's beginning to change, Geoffrey York reports from Johannesburg.
Of all the self-serving reasons conjured up by European officials to keep one of their own in charge at the IMF, none can top the idiotic notion that a European is needed at the top because of the international agency's key role in sorting out the complicated sovereign debt crisis that threatens to undo the euro zone recovery, if not the euro zone itself. Brian Milner looks at the issue.
In Economy Lab today
Canadians were the largest foreign buyers of U.S. real estate in the 12 months ending March 31, according to the U.S. National Association of Realtors annual survey, accounting for 23 per cent of all sales to foreigners. Globe and Mail real estate reporter Steve Ladurantaye looks at the numbers.
Curious games can occur when central banks seek to avoid surprises, Stephen Gordon writes. Monetary policy can become effectively outsourced to financial market analysts.
From today's Report on Business