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The recent pick-up in inflation has led some people to question the Bank of Canada's neutral stance on interest rates, but we think these concerns are misplaced. The recent increase in headline inflation largely reflects higher energy and food price …
28th July 2014
May's respectable increase in retail sales volumes combined with the stronger gains in wholesale and manufacturing sales reported last week indicate that the economy regained some lost momentum in that month. This is broadly consistent with our …
23rd July 2014
The fact that Canada's unemployment rate has only nudged higher in the past few months is astonishing, given the recent weakness in net employment gains. The only reason why the unemployment rate hasn't risen is that people have been exiting the labour …
22nd July 2014
Canadian labour market conditions appear to have deteriorated over the past year and a half, even though the unemployment rate has been unchanged. While net employment gains have been unusually weak lately, the unemployment rate hasn't risen because …
21st July 2014
The further rise in headline inflation in June, which is largely due to higher food prices, is unlikely to worry the Bank of Canada. Although most measures of underlying inflation also nudged higher, this largely reflects exchange rate pass-through …
18th July 2014
Canada's economy will struggle over the next two years due to a housing-induced slowdown that potentially could push the economy close to stagnation before the end of 2016. While export and investment growth should improve somewhat, this won't be enough …
16th July 2014
The monetary policy statement shows that the Bank of Canada isn't concerned about higher inflation, since the recent rise is due to temporary factors, rather than improvements in economic fundamentals. Although the Bank still believes that the ingredients …
The 1.6% m/m increase in the volume of manufacturing sales in May, which was partly due to production recommencing at several petroleum refineries, suggests that GDP grew by 0.2% that month. This in turn is consistent with our view that the economy as a …
The Teranet-National Bank national composite house price index showed that house price inflation continued to decelerate in June, to 4.4% from 4.6% in May. The past decline in the existing home sales-to-listings ratio points to a further slowdown over the …
15th July 2014
While the Bank of Canada's hopes for an export revival could be thwarted by the recent resurgence in the Canadian dollar, it has few options other than cutting interest rates to try and turn things around. Governor Stephen Poloz could try talking the …
14th July 2014
Canada's shocking 9,400 decline in employment, following almost no gains over the previous six months, suggests that the economy is really struggling. Clearly, the economy just isn't benefitting from the gradually improving US economy due to trade …
11th July 2014
We expect the Bank of Canada to retain its neutral interest rate bias in next week's policy statement. Although inflation has been firmer than the Bank had originally expected, this is partly because of higher food and energy prices. Those are transitory …
9th July 2014
While the Bank of Canada's summer Business Outlook Survey results point to an improvement in the fundamental drivers of economic growth, businesses seem less sure about the economic outlook. In addition, fewer businesses reported any meaningful pressures …
7th July 2014
The lacklustre pace of economic growth in the spring suggests that the economy is still misfiring. As things stand now, we estimate that the economy grew by only 2.0% annualised in the second quarter, following weather-restrained first-quarter GDP growth …
4th July 2014
The decline in the merchandise trade deficit in May looks encouraging, particularly since it was largely driven by a strong rebound in exports. Unfortunately, that rebound was heavily influenced by certain one-off factors and is therefore unlikely to …
3rd July 2014
There were both positive and negative signs in April's GDP figures, but the bottom line is that the economy is still struggling to grow in line with its potential rate, which suggests that recent fears of rising inflation are misplaced. We suspect that …
30th June 2014
While labour force retirements and shifting educational preferences among younger people may have contributed to a recent shortage of skilled trade workers in certain industries or regions, our analysis suggests that these shortages aren't a major problem …
The recent pick-up in inflation, which mainly reflects volatility in energy and food prices, won't change the Bank of Canada's neutral view on rates. With exports and investment still underperforming and housing slowing, the disinflationary effects from …
24th June 2014
The recent rally in Canada's benchmark stock market index, which has risen by 24% over the past 12 months, took it to a new record high last week. What's more impressive from our vantage point is the fact that Canada's equity market performance has …
23rd June 2014
The stronger than expected pick-up in both headline and core inflation indicates that inflation will overshot the Bank of Canada's previous forecast assumptions. Since a large part of this is due to the pass-through effects from a lower Canadian dollar, …
20th June 2014
While Canadian policymakers will be somewhat relieved to learn that household financial leverage hasn't risen any higher this year, it hasn't fallen either, meaning that heavily indebted households are still dangerously exposed to any increases in …
19th June 2014
Although inflation has been on the rise, the broader evidence suggests that this pick-up should prove temporary. Economic growth since the start of the year has been disappointing and labour market conditions remain weak. If, as we expect, the economy …
17th June 2014
While the Canadian government has been tightening its macro-prudential housing rules over the past five years, housing valuations have continued to inflate and household financial leverage has climbed to record levels. As a consequence, housing …
16th June 2014
The disappointing decline in manufacturing sales in April was entirely due to lower prices, whereas sales volumes continued to recover from the weather-related drop late last year. With sales now fully recovered, we expect further gains to be much harder …
13th June 2014
The latest Teranet house price data provide some early evidence that the slowdown in house price inflation continued in May. The past decline in existing home sales and the steady rise in the number of properties for sale suggest that house price …
12th June 2014
The Canadian dollar's decline, which began about a year ago, has reinforced the Bank of Canada's prior view that it's long-awaited export recovery is finally set to go. Over the past year, however, the currency depreciation has had little impact on …
9th June 2014
The 25,800 rebound in employment in May wasn't quite enough to reverse fully the slightly bigger decline in the previous month and it leaves the level of employment barely higher over the past six months, justifying the Bank of Canada's recent …
6th June 2014
Our fear is that the impressive recovery in new motor vehicle sales since the recession ended, which was driven principally by a surge in light truck sales, will fade as the housing boom falters, removing what has been a support to economic growth. … …
5th June 2014
The Bank of Canada retained its neutral rate bias in its latest policy statement and emphasised that, although core inflation has turned out slightly firmer than expected, it is more concerned than before about economic growth prospects. Overall, the …
4th June 2014
Canada's merchandise trade position unexpectedly shifted from an upwardly revised surplus in March to a small deficit in April, as the terms of trade deteriorated and energy and primary metals exports dropped back. With energy production still rising at a …
The recent decline in Government of Canada bond yields is consistent with market participants revising down their longer-term expectations of the future path of the overnight policy interest rate. Rather than being triggered by domestic factors, however, …
2nd June 2014
Although Canada's slowdown in the first quarter can be partly blamed on bad weather, the underlying trends suggest that the economy lost some momentum in exports and investment. While this should turn around soon, we still think that the expected …
30th May 2014
We expect the Bank of Canada to retain its neutral interest rate bias in next week's policy statement. Although inflation has been firmer than the Bank had expected, due to higher energy prices and the lower Canadian dollar, labour market conditions …
28th May 2014
In contrast to the upbeat news coming out of the US, the more Canadian data we see on economic activity in March, the less reassured we are that the softness in the preceding three months was just a weather-related blip. Judging by the softening trends in …
26th May 2014
The expected increase in headline inflation, to 2.0% in April from 1.5% in March, mainly reflects higher energy price inflation which should prove to be temporary. In contrast, core inflation only nudged higher. With the Bank of Canada focused on the …
23rd May 2014
While the pace of Canadian job creation appears to have slowed somewhat, the corresponding deterioration in job quality is more perplexing. Lower-wage part-time employment appears to be taking the place of higher paying full-time positions, casting …
22nd May 2014
The unexpected decline in March's retail sales volumes, combined with the mixed showing in wholesale and manufacturing sales, suggests that the economy continued to struggle at the end of the first quarter. … Retail Sales …
While the recent strength of Canada's housing market has been astounding, the regional breakdown reveals that it has begun to fray at the edges. With house prices already declining in some smaller regions, it may only be a matter of timing before prices …
19th May 2014
Manufacturing continued to recover in March from the severe winter that dampened sales volumes late last year. With sales almost fully recovered now, we expect further gains to be more modest, as domestic producers struggle to compete, particularly in …
15th May 2014
Although the Teranet measure of house price inflation ticked up to 4.9% in April, from 4.6%, the earlier decline in existing home sales suggests some moderation in house price gains this year. Our expectations of a steady fall in home sales would …
14th May 2014
Canada's exports have continued to underperform, despite gradually improving US economic conditions and the fall in the previously high-flying Canadian dollar. Although the bad weather partly explains the sharp drop in Canadian merchandise export volumes …
12th May 2014
April's unexpected 28,900 decline in net employment suggests that the economy remained stuck in the slow lane last quarter, hampered by an underperforming export sector and a housing slowdown. Accordingly, the odds of an interest rate cut from the Bank of …
9th May 2014
While Canada's external merchandise trade surplus shrunk unexpectedly in March, from a bigger than previously estimated surplus in February, the more discouraging news was the declines in export and import volumes. For the first quarter overall, it now …
6th May 2014
Canada's uneven regional economic performance presents a dilemma for the Bank of Canada. While natural resource-rich provinces flourished last year, those that are reliant on manufacturing struggled badly. There is obviously little the Bank can do to …
5th May 2014
February's consensus-matching 0.2% m/m increase in GDP, together with small upward revisions to earlier figures, suggest that first-quarter GDP growth will turn out to be close to 2.0% annualised, higher than the Bank of Canada's estimate of 1.5%. Given …
30th April 2014
February's payroll figures suggest that nominal wages and salaries growth slowed in the first quarter and discouraging job quality trends suggest that wages might not improve much in this quarter either. Meanwhile, faster rising consumer prices will …
29th April 2014
The recent jump in gasoline prices isn’t a conundrum. Several explanatory factors are at play, including seasonal effects. But for the most part, rising gasoline prices reflect higher refinery crude input costs and the lower Canadian dollar. Unfortunately …
28th April 2014
Canada’s economic underperformance will continue as competitiveness challenges restrain exports and the slowdown in housing intensifies. We expect GDP to increase by 2.0% in 2014, before slowing to only 1.5% in 2015. Under these circumstances, the Bank of …
24th April 2014
The trivial rise in retail sales volumes in February suggests that spending was probably still being held back by the unusually severe winter weather. Nonetheless, after accounting for the better gains in both wholesale and manufacturing trade, we …
23rd April 2014
As the effects of the severe winter weather subside in the second quarter, the resulting bounce back in GDP growth could be misinterpreted as a sign of improving fundamentals rather than a short-lived burst of pent up demand. While we agree that there is …
21st April 2014
