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Canada annual inflation rises at fastest pace in a decade in April

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Inflation in Canada rose at its fastest pace in a decade in April, mostly due to the statistical comparison to last year when prices tanked amid early pandemic shutdowns, but also as gasoline and shelter costs rose, data showed on Wednesday.

Canada‘s annual inflation rate rose to 3.4%, from 2.2% in March, Statistics Canada said. Analysts polled by Reuters had expected the annual rate to rise to 3.2% in April.

A third wave of COVID-19 infections prompted many Canadian provinces to again impose strict restrictions in April, though generally not as harsh as those a year ago.

“If we can post numbers like this in lockdown with stay-at-home orders, just imagine what happens when the economy reopens. This is an across-the-board surprise,” said Derek Holt, vice president of Capital Markets Economics at Scotiabank.

Gasoline prices rose 62.5% in April, the largest year-over-year increase on record. Fuel prices fell sharply in April 2020, as the pandemic limited travel and temporarily reduced international trade. Gasoline was up 1.8% on the month.

Shelter price gains also accelerated in April, rising 3.2% year-over-year compared with 2.4% in March, mostly due to demand for single-family homes. The homeowners’ replacement index posted its largest gain since 1989.

Food prices acceleration slowed, rising 0.9% in April versus 1.8% in March, in part due to lower fresh vegetable costs. Canada imports many fresh fruits and vegetables, and the strong Canadian dollar makes those imports cheaper.

The Canadian dollar hit a six-year high on Tuesday. It steadied at about 1.2070 to the greenback, or 82.85 U.S. cents, after the inflation data.

CPI common, which the Bank of Canada calls the best gauge of the economy’s underperformance, was 1.7%, in line with analyst expectations. CPI median and trim both rose to 2.3%.

The Bank of Canada said last month that it expects inflation to temporarily hit the top of its 1%-to-3% control range, before returning to around 2% in the second half of the year.

The central bank has signaled it could start lifting interest rates in the second half of 2022.

“Underlying core measures are still running around (the Bank of Canada‘s) 2% target rate, but the more firming we see, the more likely it moves off the sidelines earlier than was expected a few months ago,” said Nathan Janzen, senior economist at Royal Bank of Canada.

(Reporting by Julie Gordon; additional reporting by Steve Scherer in Ottawa, Fergal Smith and Jeff Lewis in Toronto; Editing by Andrew Heavens, Kirsten Donovan, Nick Zieminski and Jonathan Oatis)

Economy

Canadian retail sales slide in April, May as COVID-19 shutdown bites

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december retail sales

Canadian retail sales plunged in April and May, as shops and other businesses were shuttered amid a third wave of COVID-19 infections, Statistics Canada data showed on Wednesday.

Retail trade fell 5.7% in April, the sharpest decline in a year, missing analyst forecasts of a 5.0% drop. In a preliminary estimate, Statscan said May retail sales likely fell by 3.2% as store closures dragged on.

“April showers brought no May flowers for Canadian retailers this year,” Royce Mendes, senior economist at CIBC Capital Markets, said in a note.

Statscan said that 5.0% of retailers were closed at some point in April. The average length of the closure was one day, it said, citing respondent feedback.

Sales decreased in nine of the 11 subsectors, while core sales, which exclude gasoline stations and motor vehicles, were down 7.6% in April.

Clothing and accessory store sales fell 28.6%, with sales at building material and garden equipment stores falling for the first time in nine months, by 10.4%.

“These results continue to suggest that the Bank of Canada is too optimistic on the growth outlook for the second quarter, even if there is a solid rebound occurring now in June,” Mendes said.

The central bank said in April that it expects Canada’s economy to grow 6.5% in 2021 and signaled interest rates could begin to rise in the second half of 2022.

The Canadian dollar held on to earlier gains after the data, trading up 0.3% at 1.2271 to the greenback, or 81.49 U.S. cents.

(Reporting by Julie Gordon in Ottawa, additional reporting by Fergal Smith in Toronto, editing by Alexander Smith)

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Economy

Canadian dollar notches a 6-day high

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Canadian dollar

The Canadian dollar strengthened for a third day against its U.S. counterpart on Wednesday, as oil prices rose and Federal Reserve Chair Jerome Powell reassured markets that the central bank is not rushing to hike rates.

Markets were rattled last week when the Fed shifted to more hawkish guidance. But Powell on Tuesday said the economic recovery required more time before any tapering of stimulus and higher borrowing costs are appropriate, helping Wall Street recoup last week’s decline.

Canada is a major producer of commodities, including oil, so its economy is highly geared to the economic cycle.

Brent crude rose above $75 a barrel, reaching its highest since late 2018, after an industry report on U.S. crude inventories reinforced views of a tightening market as travel picks up in Europe and North America.

The Canadian dollar was trading 0.3% higher at 1.2271 to the greenback, or 81.49 U.S. cents, after touching its strongest level since last Thursday at 1.2265.

The currency also gained ground on Monday and Tuesday, clawing back some of its decline from last week.

Canadian retail sales fell by 5.7% in April from March as provincial governments put in place restrictions to tackle a third wave of the COVID-19 pandemic, Statistics Canada said. A flash estimate showed sales down 3.2% in May.

Still, the Bank of Canada expects consumer spending to lead a strong rebound in the domestic economy as vaccinations climb and containment measures ease.

Canadian government bond yields were mixed across a steeper curve, with the 10-year up nearly 1 basis point at 1.416%. Last Friday, it touched a 3-1/2-month low at 1.364%.

(Reporting by Fergal Smith; editing by Jonathan Oatis)

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Economy

Toronto Stock Exchange higher at open as energy stocks gain

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Toronto Stock Exchange edged higher at open on Wednesday as heavyweight energy stocks advanced, while data showing a plunge in domestic retail sales in April and May capped the gains.

* At 9:30 a.m. ET (13:30 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was up 16.77 points, or 0.08%, at 20,217.42.

(Reporting by Amal S in Bengaluru; Editing by Sriraj Kalluvila)

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