With lawmakers on summer recess and the Bank of Canada’s latest decision in the can, attention turns to the economic numbers for signs of whether the recent momentum will continue, and what it might mean for interest rates.
“Recent Canadian developments stand in sharp contrast to events in much of the rest of the world,” Scotiabank economists including Jean-François Perrault wrote in a July 12 research report. “Whereas U.S. growth is clearly decelerating, Canadian growth is on an upswing, with recent indicators pointing to a very sharp rebound from a somewhat sluggish start to the year.”
In a data-packed week, these are the most important releases to watch:
Statistics Canada releases Consumer Price Index data for June on Wednesday. Economists are predicting a 0.3 per cent decrease in the month-over-month reading, and a deceleration in the annual print to two per cent, mostly on a significant drop in gasoline prices. In May, the annual rate hit 2.4 per cent, a seven-month peak, while core measures, which strip out many of the most volatile items, reached the highest since 2012. Those core measures are forecast to remain at about 2.1 per cent, and so long as underlying inflation remains relatively close the Bank of Canada’s two per cent target, there’s less reason for it to change its wait-and-see approach to interest rates.
Two days later, on Friday, the federal statistics agency releases May retail sales numbers. After muted gains the month before, economists see stronger contributions from NBA playoff spending, as well as home furnishings and building materials as housing continues to strengthen. With the labor market still strong and borrowing costs holding steady, look for the Canadian consumer to continue propping up the economy. The median forecast in a Bloomberg survey is for retail sales to rise 0.3 per cent in May, and the ex-autos number to come in even higher, at 0.4 per cent.
They will likely be overshadowed by the inflation data, but manufacturing numbers out Wednesday should signal an improvement after the 0.6 per cent decrease in the prior month. Analysts at Toronto-Dominion Bank are looking for a 1.6 per cent gain in the month on transportation products including motor vehicles and aerospace equipment. The median forecast in a Bloomberg survey is for a two per cent gain.
Housing numbers will come increasingly into focus, given the role residential investment is playing in the central bank’s rebound narrative. On Monday, the Canadian Real Estate Association reports existing home sales for June, while the Teranet Home Price Index comes out Thursday. The country’s housing market has looked much better in the second quarter so far — starts had a massive gain last month — and this week’s data points, the last for the period — should continue the trend.