OTTAWA ? Canadian consumers are proving to be a hard sell.
Retail purchases have dropped way more than expected, while falling consumer prices have not provided a much-needed resurgence in buying.
?We?ve known for a long time that inflation in Canada has been well-contained,? said Scotiabank?s Camilla Sutton. ?But seeing the weakness in the domestic consumer sector is concerning, particular because it is broad-based.?
After five straight months of meager increases, Statistics Canada said Friday that shoppers pulled back dramatically on their spending in December, with sales falling 2.1%,
That was the largest monthly drop since April 2010, when purchases were down 2.4%.
Purchases of new cars led the decline, falling 7.7%, ending a six-month string of advances. Overall, sales at vehicle and auto-parts outlets were down 6.4% in December.
Together with fewer purchases in other sectors ?? such as electronics and appliances ? tracked by the federal agency, the monthly declines accounted for 58% of all retail activity in Canada.
The drop in seven of the 11 categories during the month ? the prime shopping period ? sheds some light on how gains in consumer prices have been weakening throughout 2012.
That trend continued in January, with the annual rate of inflation easing to 0.5% from a still-small year-over-year pace of 0.8% in the previous month, Statistics Canada reported in a separate report on Friday.
Last month?s rise in prices ? down from 2.5% in January 2012 ? is the smallest since 0.1% October 2009, when costs rose by just 0.1%.
Price increases, although meager, were up in six of the agency?s eight inflation-tracking sectors last month. Helping to hold back the annual pace were gasoline costs, which fell by 1.8% after rising 1% in December.
When gas is excluded, the consumer price index increased by 0.6% in the 12 months to January, compared with an annual rate of 0.8% in December. The weaker January gains were primarily due to price declines for clothing ? as retailers cut sales prices more aggressively than a year earlier? and slower increases in food bought at retail outlets.
Meanwhile, the core inflation index ? stripping out volatile items such as some energy and food products ? eased to 1% in January from an annual pace of 1.1% the previous month.
Economists had expected retail sales to decline by 0.3% and consumer prices to slow to 0.7%.
Considering the Bank of Canada?s inflation target is 2%, it would appear policymakers will remain shackled with its near-record low 1% trendsetting interest rate well into next year.
?The combination of weak growth, ultra benign inflation, and a still-strong Canadian dollar have all but iced the Bank of Canada. In turn, this, along with a growing trade deficit, has put the ?still-strong Canadian dollar? on thin ice,? said BMO Capital Markets.
BMO said the data are ?just the latest in a series highlighting that the Canadian economy ended 2012 on a weak note. Indeed, real GDP for December looks like it will fall modestly, while Q4 growth is expected to be below 1%.?
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Source: http://business.financialpost.com/2013/02/22/canadas-retail-sales-plunge-most-in-three-years/
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