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Each day TFO Canada publishes a sample of trade news on the Canadian import market along with any new, updated or changed regulations and legislations regarding international trade; countries in which TFO Canada offers services and on the export sectors which it promotes.


CANADA: The consumer price index was flat in June

Wednesday, July 26, 2017 > 11:06:19

FX Street

CANADA: The consumer price index was flat in June in seasonally adjusted terms allowing the year-on-year inflation rate to drop three ticks to 1.0%, its lowest level in 20 months. The price increases in food (+0.4%), healthcare (+0.3%), alcohol/tobacco (+0.4%), household operations (+0.1%), recreation (+0.1%) and shelter (+0.1%) were offset by a decline in the price of transportation (-0.5%). Excluding food and energy, CPI rose 0.2% in seasonally adjusted terms but, due to base effects, the year-on-year rate remained unchanged at 1.4%. On an annual basis, the CPI-trim stood at 1.2% (unchanged), CPI-Median at 1.6% (up from 1.5%) and CPICommon at 1.4% (up from 1.3%). The average of the three measures edged up one tenth to 1.4% from a 17-year low in the prior month. Inflation in Canada was below expectations for a fifth month in a row. However, the fact that transportation was the only category showing a decline indicated that the weakness was far from widespread. Due to a positive base effect, we expect annual inflation to bounce back in July.

Retail sales rose 0.6% in May, with increases in 5 of the 11 major subsectors, including a 2.4% increase for autos. Excluding autos, sales were roughly flat as increases for sellers of electronics, furniture/home furnishings, food/beverage and miscellaneous items dwarfed declining sales of gasoline, health products, clothing, building materials, sporting goods, and general merchandise. Discretionary sales, i.e. sales excluding gasoline, groceries and health products, rose a solid 0.9% during the month. In real terms, Canadian retail spending was up a healthy 1.1% during May and, assuming no change in June, they should grow at an annualized pace of 6% in Q2. This would represent a slight deceleration from Q1's print and is thus consistent with an expected moderation of GDP growth in Q2. That said, the results still suggest Canadian consumption remained in good shape in the second quarter, backed by sound fundamentals such as income gains from a solid labour market, the housing wealth effect and low interest rates. 

Manufacturing shipments rose 1.1% month on month in May, taking nominal sales to an all-time high. Sales increased in 16 of the 21 industries surveyed, including electrical equipment (+4.5%), chemicals (+2.4%), machinery (+2.2%), and transportation equipment (+4.2%). These gains more than offset declines in food products (-1.2%), petroleum and coal (-3.4%) and non-metallic mineral products (-0.8%). In the 12 months to May, nominal sales were up 8.7%, the steepest year-on-year increase since July 2014, with strong gains not only in Ontario (+7.4%), Quebec (+8.1%) and British Columbia (+8.2%), but also in Alberta (+18.4%), Saskatchewan (+8.9%), and Newfoundland and Labrador (+29.0%), the three provinces hardest hit by the slump in oil prices. Overall, the solid increase in shipment volumes, which advanced 1.1% in May to reach a post-recession high, points to a strong month and a more than decent Q2.

International securities transactions data showed foreign investors increased their holdings of Canadian securities by C$29.5 billion in May thanks to net buying of bonds (+C$21 billion), equities/investment funds (+C$7.2 billion) and money market instruments (+C$1.4 billion). About half of the bond inflows went into provis (+C10.2 billion), but there was strong appetite for federal government bonds (+C$4.3 billion) and corporates (+C$6.4 billion, including C$1.8 billion in government enterprise bonds) as well. The vast majority of bonds purchased by foreigners was denominated in foreign currencies. So far this year, foreigners' intake of Canadian bonds has averaged about C$12 billion/month, topping last year's record C$9.1 billion/month. Indeed, in 2017, appetite for corporate bonds (C$7.7 billion/month on average) and provis (C$3.9 billion/month on average) has surpassed the already high levels recorded in 2016.

According to the Canadian Real Estate Association (CREA), in June, existing home sales fell the most in seven years, retracing 6.7% in seasonally adjusted terms to 39,979 units. Since peaking in March, unit sales dropped 14.1% in Canada as a whole. On a 12-month basis, sales retreated 11.4% in actual terms (not seasonally adjusted). With sales declining and new listings increasing only 1.5% in June, the new-listings-to-sales ratio jumped to 1.89 from 1.79 in May (a ratio of 1.60 to 2.10 is generally consistent with a balanced housing market). Back in January, this indicator stood at a 12-year low of 1.46, which clearly reflected a sellers' market. Most of the realignment seen in the Canadian housing market was driven by the Toronto area, where sales fell 15.1% month on month in June after retreating 25.9% in May. In fact, the cumulative drop in sales in Ontario's capital since the introduction in April of the Fair Housing Plan—a set of measures aimed at cooling the redhot housing market in the province—has totaled 41.7%, the largest decline for a similar time period since March 1990. Over the same time span, new listings spiked 12.7% in the city. As a result, the new-listings-to-sales ratio shot up from a trough of 1.06 in January to 2.54 in June.

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