Inflation in Canada in May reached its fastest pace in a decade, driven by surging shelter and passenger vehicles prices, as the impact of the statistical comparison to tanking prices last year eased, Statistics Canada said on June 16. Canada’s annual inflation rate accelerated to 3.6%, from 3.4% in April, Statistics Canada said. That was slightly ahead of analyst expectations that the annual rate would rise to 3.5%.

Part of the rise in inflation is due to comparing prices to the low levels seen last year at the start of the pandemic for such items as gasoline, furniture and beef products. However, Statistics Canada said the increase in year-over-year price growth in May wasn’t solely because of this comparison. It noted more recent price pressures are also driving inflation, with rising housing costs among the leading reasons. 

Adding to that are supply-chain issues that have made it more expensive to build new homes or cars, with costs being passed along to consumers. Prices are expected to rise over the summer as provinces ease public health restrictions, businesses look to make up for lost revenues and consumers have more places to spend their cash.

The Statistics Canada report also said homeowner replacement costs, which includes prices for new housing, rose 11.3% year-over-year in May, the largest increase since 1987. With the jump in May, Statistics Canada said that now makes 16 consecutive months of price increases driven by buyers looking for larger homes and higher construction costs.

The jump in inflation comes even as many Canadian provinces continued to face shutdowns in May amid a harsh third wave of COVID-19 infections. Most regions have now begun to reopen.

CPI common, which the Bank of Canada calls the best gauge of the economy’s underperformance, was 1.8%, just below analyst expectations of 1.9%. CPI median was 2.4% and trim 2.7%.

The Bank of Canada targets the 2% mid-point of a 1%-3% inflation control range. It expects inflation to stay around 3% through the summer before easing later in the year. The Canadian dollar held on to modest gains after the data, trading at about 82.13 US cents.

April Retail Sales

Retail sales were down 5.7% to $54.8 billion in April. The decline coincided with the third wave of the COVID-19 pandemic and was the largest decline in retail sales since April 2020 during the first wave of the pandemic. The largest declines were observed in clothing and clothing accessories stores (-28.6%) and general merchandise stores (-8.1%). 

Sales decreased in 9 of 11 subsectors, representing 74.2% of retail trade. Core retail sales—which exclude gasoline stations and motor vehicle and parts dealers—decreased 7.6%. In volume terms, retail sales decreased 5.6% in April.

Based on respondent feedback, 5.0% of retailers were closed at some point in April, compared with approximately one-third of retailers being closed at the same time last year. The average length of the shutdown was one day, compared with eight days in April 2020.

Given the rapidly evolving economic situation, Statistics Canada is providing an advance estimate of retail sales, which suggests that sales declined 3.2% in May. Owing to its preliminary nature, this figure will be revised. This unofficial estimate was calculated based on responses received from 62% of companies surveyed. The average final response rate for the survey over the previous 12 months has been 91%.

Widespread declines in core retail sales amid COVID-19 third wave restrictions

Core retail sales fell 7.6% in April, the largest decline in a year and second largest decline on record. The decline was concentrated in those retailers deemed “non-essential,” with all store types except food and beverage stores (+0.6%) and miscellaneous store retailers (+0.9%) posting declines.

Sales declined by 8.1% at general merchandise stores. This was the largest decline since the onset of the pandemic in April 2020. Despite the decline in sales, only 0.6% of general merchandise stores were closed during April. Stores may have been impacted in other ways such as restrictions on the types of products they could sell.

Sales at building material and garden equipment and supplies dealers declined for the first time in nine months (-10.4%). Despite the decline, sales remained above levels reached in February 2021. The decline comes after record sales of hardware, tools, and renovation and lawn and garden products in March.

On a seasonally adjusted basis, retail e-commerce fell 0.4% in April. On an unadjusted basis, retail e-commerce sales were up 7.4% year over year to $4.0 billion in April, accounting for 7.0% of total retail trade. The share of e-sales out of total retail sales rose 0.4 percentage points in April.

Source: Globe and Mail
Source: Toronto Star
Source: Financial Post
Source: Statistics Canada