HomeBusiness & FinanceCanada Economy Watch For The Week Ended November 18

Canada Economy Watch For The Week Ended November 18

Canada Economy Watch For The Week Ended November 18

Global equity markets finished largely flat over the week ended November 18. Investors pondered the next move by the U.S. Federal Reserve Board (“Fed”) after several Fed officials suggested rates must go higher, and a pause in rate hikes would be unlikely in the near term. In Canada, the S&P/TSX Composite Index moved lower, hindered by weakness in the Health Care sector. In the U.S., the S&P 500 Index was dragged down by the Consumer Discretionary sector. Yields on 10-year government bonds in Canada and the U.S. slipped lower. Oil prices fell on global growth concerns amid geopolitical tensions, while the price of gold also finished lower

Canada’s inflation rate unchanged

  • Canada’s inflation rate stayed at 6.9% in October, matching economists’ estimates.
  • The Consumer Price Index increased 0.7% in October (not seasonally adjusted), a tick less than expected by consensus. In seasonally adjusted terms, headline prices were up 0.6% on gains for transportation (1.6%), shelter (0.8%), alcohol and tobacco (0.5%), health and personal care (+0.5%), and food (0.4%), among others.
  • A rise in energy, shelter and mortgage costs, offset by a slowdown in the price growth for food, contributed to the increase.
  • The core inflation rate, which excludes more volatile items, ticked lower to 5.8% in October from 6.0% in the previous month.
  • Clearly, Canada’s inflation rate remains elevated, with price pressures still broad-based.
  • The results suggest further tightening by the Bank of Canada at upcoming meetings to pull inflation back down to its 2% target.

Canada expects price gains to moderate further in the coming months. Indeed, high upstream inventories, significantly lower freight costs, price cuts by Chinese producers, and the global economic slowdown herald a lull on the goods side. For services, returning to more acceptable inflation levels may take longer, but there are reasons to believe that the labour market will loosen in a lowgrowth environment and contribute to reduce wage pressures

Relatively strong U.S. retail sales growth

  • U.S. consumers proved resilient in October despite facing tighter financial conditions.
  • Retail sales in the U.S. rose by 1.3% in October, beating the 1.0% increase economists expected. It was the sharpest pace of monthly growth since February 2022.
  • Motor vehicle and parts sales jumped as some easing supply chain disruptions in the industry helped boost supply. Sales also rose at gasoline stations, partly due to higher prices.

The relative strength of U.S. consumers might encourage the Fed to keep raising rates.

U.K. inflation rate at 41-year high

  • The U.K. inflation rate hit a 41-year high in October at 11.1%, well above the 10.7% rate economists expected and September’s 10.1% rate.
  • It appears the Bank of England’s (“BoE”) aggressive rate hikes thus far in 2022 are having little impact on driving down inflation.
  • Ongoing pressures on household gas and electricity prices were major contributors to the higher inflation rate in October. This is despite the government’s Energy Price Guarantee, which capped prices that would have climbed even higher without the program.
  • Russia’s invasion of Ukraine pushed up energy prices, particularly affecting U.K. prices.

The data suggests the BoE might keep raising interest rates aggressively at upcoming meetings despite waning economic growth in the U.K.

Restrictions weigh on China’s retail sales

  • Retail sales in China fell by 0.5% year-over-year in October, the first annual decline since May 2022.
  • Domestic demand has been weighed down by ongoing lockdown restrictions, which dampened consumer spending activity.
  • Sales fell across most categories during the month, with notable declines in clothing, building material and home appliance sales.
  • Meanwhile, industrial production rose 5.0% year-over-year in October, slowing from September’s 6.3% increase.
  • The slowdown comes amid rising cases of COVID-19, which resulted in new lockdown restrictions in some key manufacturing areas of the country.

China’s Zero-COVID policy prompted several lockdown restrictions this year. With slowing global economic conditions, China’s economy has come under pressure in 2022.