Canada - Top Reports This Week

Canada sees two top-tier reports this week - retail sales on Wednesday and the CPI on Thursday. Today sees only international securities transactions (the volatile report is expected to show a net foreign portfolio inflow of $C5 billion).

Retail sales are expected to be up 0.5% in June, little changed from the 0.4% gain achieved in May. However, most of the increase will likely be attributable to higher prices rather than volumes and primarily a reflection of another strong gain in gasoline prices in that month.

The earlier-released June consumer price index indicated that gasoline prices were up 6% in the month following a 9% gain in May. The more moderate increase in gasoline prices will not prevent the monthly growth rate in core, or ex. auto, retail sales rising slightly to 0.6% from 0.4% as a number of components (e.g., clothing and general merchandise stores) are expected to return to trend gains after very subdued increases in May. Auto sales are expected to be flat in the month reflecting indications from Statistics Canada that preliminary industry data for July were pointing to an unchanged level of sales activity.

We expect a slowing in the headline CPI in July from 0.7% in June to a projected 0.2% in July. Core prices are expected to show another modest 0.1% gain, reflecting some seasonal weakness in clothing and motor vehicle prices. On a year-over-year basis, the headline inflation rate is expected to rise to 3.2% from 3.1% in June, while the core rate is expected to hold steady at 1.5%.

Preview of this week's top U.S. reports

This week sees only the NAHB housing index out today - the headline index is expected to hold at the all-time low of 16 - producer prices (PPI) and housing starts/permits on Tuesday and the Philly Fed/leading indicators on Thursday.

The PPI surged 1.8% in June, reflecting a hefty 9% gain in the gasoline component with some pressure also coming from food. Although there are indications that the spot price for wholesale gasoline declined in July, this spot price generally affects the PPI with a lag. However, it is likely that this recent weakness will contribute to a moderation in the pace of increase in July energy prices. Thus, growth in the overall measure is expected to slow to 0.7%, sending the year-over-year rate up to 9.3% from 9.2% in June. Excluding energy and food prices, the so-called core measure is expected to remain well behaved, rising only 0.2% and resulting in an annual increase of 3.1%, up slightly from the 3.0% rate in June.

Housing starts unexpectedly soared in June, rising 9.1% to an annualized 1.066 million units. However, much of the strength reflected changes in the New York City building code effective July 1. This resulted in builders advancing the start of construction of units to avoid being subject to the new regulations. The advancement of construction activity will result in some payback in July with housing starts expected to drop 11.8%. The implied average level of starts in June and July of 1,000K is indicative of weak new construction that is consistent with still historically high inventories of unsold homes.

RBC Financial Group
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The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.