* Inflation rises to 0.7 pct from 0.4 pct, still well below
* Retail sales weaker than expected, volumes healthy
* Canadian dollar slumps to 19-month low after the data
* New central bank chief under little pressure to uphold
By Louise Egan
OTTAWA, June 21 A jump in natural gas prices
raised Canada's annual rate of inflation to 0.7 percent in May
from a 3-1/2-year low of 0.4 percent, but the figure remained
well below the central bank's target, confirming there is
little pressure to raise interest rates soon.
The weak numbers knocked the Canadian dollar to its lowest
level against the U.S. dollar since December 2011.
Retail sales for April also missed forecasts, gaining just
0.1 percent from March, short of estimates of 0.3 percent
growth, as weaker sales at gas stations offset strong car
The consumer price index (CPI) climbed 0.2 percent in the
month, Statistics Canada said on Friday. Core CPI, which
excludes energy and other volatile items, also gained 0.2
percent, leaving the annual rate unchanged at 1.1 percent.
Both the overall and core inflation rates were below market
forecasts of 0.9 percent and 1.2 percent, respectively. Only one
out of 23 analysts in a Reuters poll expected CPI as low as 0.7
Market players were sanguine about the weak numbers and most
have said it is too early for new Bank of Canada Governor
Stephen Poloz to abandon the mildly hawkish bias the bank
maintained for the past 14 months under his predecessor, Mark
"It was slightly weaker on CPI, but not too much outside
expectations. We've been living with weak CPI numbers for a
while," said Mark Chandler, head of fixed income and currency
strategy at RBC Capital.
"At some point the Bank of Canada is going to have to
address the weakness in CPI. To this point they are saying it's
OK, inflation expectations have been anchored," he said.
The Canadian dollar slumped to a 19-month low of
C$1.0474 versus the U.S. dollar, or 95.47 U.S. cents, after the
data was released. That was below Thursday's finish at C$1.0373,
or 96.40 U.S. cents.
Chandler said the central bank's quarterly survey of
business sentiment, which includes inflation expectations, will
be key to Poloz's first rate decision in mid-July.
The Bank of Canada targets 2 percent inflation and has been
signaling since April 2012 that its next move on interest rates
will be an increase, not a cut, although markets don't expect
any move until late 2014.
The central bank said in April that overall and core
inflation would remain subdued in the near term, averaging 1
percent and 1.2 percent, respectively, in the second quarter. It
said both measures would gradually rise to 2 percent by
A 15.4 percent spike in natural gas prices in the year to
May - the biggest increase since December 2008 - was the main
reason inflation rose in May, Statscan said. Cheaper gasoline
tempered the increase.
By broad categories, shelter (which includes natural gas)
and food prices were the biggest contributors to the 12-month
rise in the CPI, while transportation (which includes gasoline)
exerted the most downward pressure.
May was the 13th consecutive month that inflation was below
the Bank of Canada's 2 percent target.
RETAIL SALES VOLUME ROSE
Despite the weaker-than-expected retail sales in April,
which would suggest tepid demand when the price effects are
removed, retail sales in volume grew 0.5 percent.
Retailers reported higher sales in six of 11 subsectors,
representing just over half of total sales.
Overall retail sales were 1.5 percent higher than in April
On a monthly basis, motor vehicle and parts dealers saw the
biggest jump in sales, up 1.4 percent and led by new-car
purchases. Gasoline station sales fell 2.9 percent.
Stripping out sales by motor vehicles and parts dealers,
retail sales fell by 0.3 percent in April, the same as in March.