Canada’s economy struggles as inflation and retail sales slow

Canada’s inflation rate fell in January to its lowest since 2009 and retail sales plunged in December, adding to evidence the country’s economy is struggling to accelerate from its slowest pace since the 2009 recession.

Consumer prices rose 0.5 percent in January from a year earlier, the least since October 2009, Statistics Canada said today from Ottawa. Retailers in December recorded a 2.1 percent drop in sales, the biggest decline in almost three years, the agency said separately.

The data suggest Canada’s economy is growing at the weakest pace since 2009 as households and businesses pare spending and the nation’s exporters struggle to sell goods abroad. Bank of Canada Governor Mark Carney said last month an increase to his 1 percent policy interest rate has become “less imminent” because the weaker-than-expected economy is keeping inflation below the 2 percent target.

“All in all, it’s two negative reports that will likely weigh on expectations of the Bank of Canada’s ability to raise rates,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia, by telephone from Toronto.

Canada’s dollar weakened to almost a seven-month low against its U.S. counterpart, depreciating 0.4 percent to C$1.0228 per U.S. dollar at 9:02 a.m. in Toronto. Bonds rose, with the yield on the 2-year government benchmark falling three basis points to 1.08 percent.

The central bank last month pared its forecast for 2013 economic growth to 2 percent from an October prediction of 2.3 percent, and said the economy won’t reach full output until the second half of 2014.

Quarterly Growth

Today’s retail report is the last major piece of data before Statistics Canada releases fourth-quarter growth figures on March 1. The Bank of Canada projects output increased by a 1 percent annualized pace in the fourth quarter, up from the 0.6 percent pace recorded in the third quarter, yielding the slowest six-month performance since 2009.

The value of retailer receipts fell in December to the lowest since September 2011, with the decline surpassing the 0.3 percent drop forecast by economists surveyed by Bloomberg News.

Automobile and parts sales fell 6.4 percent to C$8.54 billion, the agency said. Purchases at retailers excluding car dealerships fell 0.9 percent. On that basis, economists surveyed by Bloomberg forecast 0.2 percent growth.

Seven of the 11 retail categories tracked by Statistics Canada recorded declines in December, representing 58 percent of total retail trade. Electronics and appliance store retailers reported a 12.1 percent drop in sales. Department stores, sporting goods retailers and home furnishing outlets also posted declines.

Weaker Inflation

Inflation was also weaker than expected. Economists predicted prices to rise 0.6 percent in January from a year earlier. The central bank projected the consumer price index would increase by an average 0.9 percent in the first quarter of this year.

Food inflation slowed to 1.1 percent in January, following an advance of 1.5 percent in December, the agency said. Costs for transportation, which include gasoline, fell 0.5 percent over the 12-month period, after increasing 0.5 percent in December. Car prices fell 0.8 percent in January from a year earlier. Canadians paid 1.6 percent less for clothing last month than a year earlier, the agency said.

On a monthly basis, prices rose 0.1 percent in January, slower than the 0.2 percent economists predicted. On a seasonally adjusted basis, consumer prices fell 0.1 percent.

Bloomberg News

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