marctomarket.com / by Marc Chandler / June 19, 2017
It is a light week for economic data from the G7, and for the reports that are on tap are unlikely to change the consensus scenario in the aftermath of major central bank meetings in the first half of the month. Canada may be the chief exception to this generalization. In the second half of the week, Canada will report retail sales and CPI.
The reports will show less consumption and price pressures. It may ease concerns, prompted by Bank of Canada officials that the degree of accommodation is worth reconsidering. Consumption jumped in Q1 (2.4 percentage points to 3.7% GDP, the most since the crisis, and appears to eased here in Q2. Retail sales rose 0.7% in March. We know fall in auto sales in April will be partially blunted by the rise in gasoline prices. The risk seems to be on the downside in volume terms.
The Bank of Canada recently suggested that the soft core inflation readings were the result of the lagged effect of excess capacity. This implies that it expected higher inflation readings in light of the strong growth over the past few quarters. However, the pass-through from stronger growth to higher prices may take longer than the market may suspect, which has increased the odds of a July rate hike to from about 5% at the end of May to 45% at the end of last week. The base effect and the electricity rebate (Ontario) warn of downside risks.