Less vigorous economic data than expected seems to raise doubts about when the Bank of Canada will decide to move forward with a further hike in its key rate.
In recent months, several experts anticipate monetary tightening at the next meeting of the central bank next month. Analysts are wondering whether a series of items – mainly related to trade concerns caused by the protectionist policies of the Trump administration – will instead prompt Governor Stephen Poloz to opt for the status quo on July 11.
On Friday, two reports released by Statistics Canada contributed to uncertainty surrounding the Bank of Canada’s next key rate hike.
At first, the federal agency said that for a second consecutive month, annual inflation was 2.2% in May, which was lower than market expectations, at 2.6%.
In addition, Statistics Canada revealed that retail sales contracted 1.2% in April, the first monthly decline since December.
“These reports show that the economy has run out of steam significantly over the past year or two,” said Robert Kavcic, Senior Economist at BMO Capital Markets, in an interview. Due to uncertainty, I believe that expectations of a monetary tightening in July will be tempered. ”
For its part, CIBC World Markets’ Royce Mendes wrote in a report that “bad data” could complicate the central bank’s task of possibly raising the key rate in July.
He added, however, that things could change by July 11, as data on gross domestic product and employment are still expected.
The central bank looks closely at inflation before making decisions on interest rates. Its key rate hikes are its main tool to prevent inflation from climbing too high.
Observers will be looking for clues in a speech to be delivered by Poloz next Wednesday at the Victoria Chamber of Commerce in British Columbia.
In April, annual inflation was also 2.2%, up from 2.3% in March.
The federal agency said growth in May was boosted by a 22.9 percent increase in gasoline prices, which boosted energy prices by 11.6 percent.
Statistics Canada’s report also found that the average of the Bank of Canada’s three core inflation measures – data that excludes distortions from the most volatile prices, such as gasoline and fresh fruits and vegetables – had slowed to 1.9%.
May’s 2.2% inflation remained strong enough to remain above the Bank of Canada’s ideal target of 2%.
Retail sales were $ 49.5 billion in April, down 1.2%.
The decline was mainly due to a 4.3% decline in sales by auto and auto parts dealers. New car sales fell 5.1% and used car sales declined 4.1%.
Statistics Canada explained that colder weather than usual and poor weather conditions in many parts of the country explain the decline in April.
The decline in sales occurred particularly in the most populous provinces. In Quebec, sales fell 2.7%, while in Ontario, the decline was 2.3%.