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Today's robust reading on Canada's economy boosts expectations of more rate hikes to come this year

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Canada’s economy is proving increasingly robust in the second quarter, with inflation and retail sales coming in ahead of economists’ expectations.

The consumer price index recorded an annual pace of 2.5 per cent in June, the fastest year-over-year acceleration since 2012, Statistics Canada said Friday from Ottawa. Economists in a Bloomberg survey anticipated a 2.3 per cent increase. In a separate report, the agency said the nation’s retailers recorded a 2 per cent increase in sales in May, double the median forecast from economists.

The reports, a reverse of last month’s disappointing sales and inflation data, will bolster expectations for continued interest rate increases this year from the Bank of Canada. The retail sales report in particular, which indicates consumer spending is ticking along, will be taken as a positive signal for the underlying strength of the country’s economy.

Earlier Friday, investors had been pricing in about a 50 per cent chance of a quarter-point rate increase at the central bank’s October meeting.

The inflation numbers will be less of a surprise, given the Bank of Canada had indicated it expects CPI to spike before falling back later this year. The annual increase reflects higher gasoline prices and food purchased from restaurants, the agency said. On the month, consumer prices rose 0.1 per cent in June, versus an expectation for a flat reading.

Core measures of inflation — seen by officials as a better gauge of underlying inflation trends — ticked up slightly to an average of 1.97 per cent, from 1.93 per cent in May.

The retail sales numbers largely reflected an increase in receipts at vehicle dealerships and gas stations, but even excluding autos, the numbers came in well ahead of what economists were expecting. Sales excluding car dealers were up 1.4 per cent, versus economist expectations for a 0.5 per cent gain.

The strength was volume related, with sales up 2 per cent once price changes were factored out.

Other CPI Highlights

The average of the Bank of Canada’s three key core inflation measures rose to 1.97 per cent in June from 1.93 per cent in May.
The “common” and “median” core rates were unchanged at 1.9 per cent and 2 per cent, while the “trim” rate rose to 2 per cent from 1.9 per cent
Inflation for services in June was 2.2 per cent. Goods inflation was 2.7 per cent
Energy prices climbed 12.4 per cent in June, and gasoline, 25 per cent higher, was the biggest upward contributor during the month

Other Retail Highlights

Sales climbed in 8 of 11 subsectors tracked by Statistics Canada Ontario (up 2.6 per cent) and Quebec (up 3 per cent) saw the biggest gains in retail sales in May

With assistance from Kevin Varley

Bloomberg.com

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Ten economic experts debate when the US may hit the next recession

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The U.S. economy is growing at a fast clip, and the bull market is entering its ninth year. But some economists are starting worry over rising interest rates and a negative signal from the bond market called a “flattening yield curve.”

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“The yield curve—with one exception in 1966—has basically predicted every recession,” Natixis Chief Economist Joseph LaVorgna told CNBC in July. “If the curve inverts let’s say in October, history would say the earliest you’d have a recession would be next summer, next August. And the latest would be August of 2020.”

“Now it’s possible that this time is different and the curve might be sending a different signal because long rates are relatively low,” LaVorgna added.

In July, the U.S. economic growth rate hit 4.1 percent for the second quarter, its fastest pace in four years. And the stock market is poised to make history Wednesday, when the nine-year bull market is supposed to become the longest in U.S. history. Here’s what 10 economic experts are saying of when and why the U.S. may hit the next recession.

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Tariffs hurting US economy, economists warn, with more pain to come if Trump withdraws from NAFTA

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Business economists are sounding some sour notes about Trump administration policies, from trade to immigration to the budget, while expecting the short-term boost to growth from Republican tax cuts to lessen over time.

The National Association for Business Economics survey showed 91 per cent of respondents said current tariffs and threats of more to come were having “unfavourable consequential impacts” on the U.S. economy, according to a report released Monday. About two-thirds saw negative effects if the U.S. withdraws from the North American Free Trade Agreement with Mexico and Canada.

In the wake of large tax cuts enacted in late 2017, the share of those saying fiscal policy is too stimulative rose to 71 per cent from 52 per cent in February, according to the responses of 251 members collected from July 19 to Aug. 2. And 81 per cent said the federal deficit’s share of gross domestic product should be reduced.

“In general, the panel expects the federal deficit, as a percentage of the economy, to grow in the longer term, with eight out of 10 panelists indicating that fiscal policy should help shrink the deficit as a share of the economy,” said survey chair Jim Diffley, an economist at IHS Markit Ltd.

Upbeat Tweets

The cautious views are at odds with the President Donald Trump’s upbeat assessment in tweets last week saying the U.S. economy is “better than ever.” Trump has also touted low rates of youth unemployment and, recently, falling joblessness among African-American and Hispanic workers.

While survey respondents continued to see deregulation and tax cuts giving a boost to growth in the short term, they also saw the effects diminishing over time as government debt continues to rise.

Almost two-thirds said the U.S. corporate tax system following the 2017 Tax Cuts and Jobs Act was an improvement over the previous regime in terms of equity and efficiency, while 25 per cent viewed it as “somewhat worse” or “far worse” than before.


Economists’ cautious views are at odds with the President Donald Trump’s upbeat assessment in tweets last week saying the U.S. economy is “better than ever.”

Andrew Harnik/AP Photo

Changes to personal income taxes fared worse, with only 31 per cent considering the new system better in terms of equity and efficiency and about 54 per cent judging it “somewhat worse” or “far worse.”

Some 37 per cent said the tax cuts would boost 2018 U.S. GDP growth by a quarter to half percentage point, while 24 per cent saw gains of a half point to three quarters of a point, the survey showed.

Fed On Point

Forecasters were more upbeat on the Federal Reserve, with 76 per cent saying monetary policy is on the right track, the most in the semiannual survey in more than 11 years, according to NABE. Nineteen percent of respondents in the current survey said policy is “too stimulative,” while four percent said the central bank’s stance is “too restrictive.”

“Most panelists believe the Federal Reserve’s current inflation target of 2 per cent should be maintained. Of the remaining panelists, more favor raising the target than lowering it,” said NABE Vice President Kevin Swift, chief economist for the American Chemistry Council.

Other findings included:

60 per cent said economic policy should do more to mitigate climate change.

74 per cent said economic policy should do more to alleviate income inequality.

63 per cent saw less than a 25 per cent chance of a meaningful infrastructure package in 2019.

45 per cent said the Trump administration’s deregulation drive has positively affected the economy so far, while 35 per cent saw it as a near-term plus that turns negative in the long run.

Bloomberg.com

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Attack on economy like attack on Turkish flag: Erdoğan

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ANKARA

President Recep Tayyip Erdoğan has called the ongoing currency crisis an attack on the Turkish economy, which he described as an attack on the Turkish flag and call to prayer, indirectly defying the United States administration’s warnings of more sanctions if the U.S. pastor is not released soon. 

“An attack on our economy is no different from a direct strike against our flag and call to prayer. The purpose is not different. It aims to bring Turkey and the Turkish people to their knees,” Erdoğan said in his Eid al-Adha message on early Aug. 20.

Erdoğan’s message did not cite the U.S. administration but obviously referred to an ongoing spat between the two allies over the detention of pastor Andrew Brunson over terror charges.

“We are not going to take it sitting down,” said U.S. President Donald Trump on Aug. 17, openly threatening Turkey with more sanctions for the continued detention of the pastor.

Trump also denounced Turkey as a “problem for a long time.”

At a cabinet meeting on Aug. 17, U.S. Treasury Secretary Steven Munchin assured further sanctions were ready to be put in place if Brunson was not freed.

“We have more that we are planning to do if they don’t release him quickly,” said Munchin.

The Turkish Lira has lost around 40 percent value against the U.S. dollar in the last month.

In response, Turkey said it would retaliate against any sanctions to be imposed by the U.S., blaming the Trump administration for using the Brunson case for its internal political objectives on the eve of midterm congressional elections in the U.S.

Erdoğan had repeated that Turkey saw the conspiracy plotted on Turkey in a statement over the weekend, vowing to walk tall against U.S. threats.

In his message on Aug. 20, Erdoğan reminded that the Turkish people could avert all attacks thanks to their ability to act in unity in difficult times, recalling the coup attempt in 2016.

“Our people are acting with the same merit today,” he said.

“We are a kind of a people who prefer to be beheaded instead of being chained around the neck,” said the Turkish president.

‘They will see they are mistaken’

Erdoğan underlined that those who think they can make Turkey give up through the exchange rate will soon see they are mistaken.

“If those who have failed to make Turkey give up through terror organizations and local treacherous gangs with all sorts of traps and tricks, think they can make Turkey give up through exchange rates, they will soon see they are mistaken. Our country, God willing, has enough power and ability to overcome this,” he said.

Turkey and the U.S. also differ on the status of the People’s Protection Units (YPG) in Syria, a group the former designated as a terror organization but the latter as an effective partner in the fight against the Islamic State of Iraq and the Levant (ISIL) in Syria. Turkey has long been accusing the U.S. of backing and arming the YPG, which constitutes an important security threat against its NATO ally.

Politics, Economy, Recep Tayyip Erdoğan

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