Weak retail sales result makes Canada rate cut more likely

Bloomberg

Canada’s retail sales unexpectedly fell and the inflation rate trailed forecasts, raising concern about the health of the country’s economic rebound.
Retail sales fell 0.1 per cent in August, compared with forecasts for a 0.3 per cent gain. Consumer inflation accelerated for the first time in five months in September to 1.3 per cent, however
the jump was below the 1.4 per cent rate economists were
forecasting.
The report comes after Bank of Canada Governor Stephen Poloz marked down his inflation forecast and said policy makers discussed cutting interest rates because of a deteriorating growth outlook. Poloz had pinned some hope on the effects of fiscal stimulus, however Friday’s retail sales data shows the impact of higher child benefits may not be filtering through to the broader economy.
“Add it all up, and the door for a rate cut that the Bank of Canada opened up this week got a tad wider still, although it will take more than one or two soft figures to propel a move,” Avery Shenfeld, chief economist at CIBC World Markets, said in a note to investors.
The Canadian dollar fell 0.7 per cent following the report to $1.3325 per U.S. dollar by 8:52 a.m. Toronto time.
Inflation hasn’t exceeded 2 per cent for about two years, and other parts of the report signaled prices aren’t about to surge past that target.
The bank’s forecast is for the temporary drag of cheaper gasoline to fade and carry inflation back toward its 2 per cent target, a process being frustrated by slack in the economy.
Gasoline prices
The core inflation rate excluding eight volatile products and some taxes remained at a two-year low of 1.8 per cent.
Gasoline prices rose 0.8 per cent in September on the month. That helped move the 12-month rate for prices at the pump to a 3.2 per cent decline in September versus an 11.5 per cent drop in August.
Excluding gasoline the inflation rate slowed to 1.5 per cent from 1.7 per cent, Statistics Canada said.
Economists surveyed by Bloomberg forecast the total inflation rate for September would rise 1.4 per cent and core by 1.8 per cent.