MNI DATA IMPACT: Canada Sept Retail Stalls as Shutdowns Return

Canada's retail sales stalled in September and were weaker than economists predicted in August as a second wave of Covid-19 led governments to move towards new health restrictions, official figures showed Wednesday.

Sales were "relatively unchanged" last month according to a flash estimate from Statistics Canada, while the official estimate for August was a 0.4% increase that lagged the MNI economist median of 1.1%. The September flash figure may face a larger revision than usual because the 43% response rate to the survey was about half of the average result over the past year.

Future gains may also be held back as many households chose to save rather than spend government relief checks, unemployment remains high and about a million people are about to move off special programs that allowed them to defer payments on mortgage and other bills.

Industry sources also told MNI that colder weather and new pandemic restrictions will harm sales later this year. Even if spending stalls, the starting point is relatively stable, because sales have already returned to pre-Covid levels and the government is extending a program of generous relief payouts to furloughed workers.

"With a lot of pent-up demand and lifestyle-adjustment spending seemingly running its course, this momentum could be tougher to sustain in the quarters ahead," Bank of Montreal senior economist Robert Kavcic wrote in a report.

MORE RENOS, FEWER HOBBIES

Spending patterns continued to be dominated by the disruption of the spring lockdown, though the magnitude of the swings have indeed faded. The August gain was led by a 4.5% rise at building material and garden equipment stores, while sales at sporting goods and hobby stores fell 3.7%. Gasoline sales rose 1.2% in the fourth straight gain as more people returned to work. Online sales figures that don't count the full value of transactions with sites like Amazon were still up 61% from a year earlier.

Two years after Canada legalized recreational marijuana use, sales in official stores were just CAD245 million in August, a fraction of earlier predictions sales would zoom to well over CAD5 billion a year. Still, sales were up 94% from a year earlier.

The inflation report showed prices rose 0.5% in September from a year ago, faster than August's 0.1% pace. That's still well below the Bank of Canada's 1% to 3% target range, and Governor Tiff Macklem will likely affirm at a decision next Wednesday that the record low 0.25% policy interest rate will remain in place for several years until the inflation goal is sustainably met.

Inflation excluding gasoline was 1.0%, and the average of the BOC's three core inflation measures was unchanged at 1.7%.

Consumer prices fell 0.1% on the month. Economists predicted 12-month inflation of 0.4%, and monthly prices to decline 0.2%.

Another report on new home prices showed the biggest gain in 14 years as the pandemic drove up labor and supply costs. Prices rose 1.2% in September after a 0.5% gain in August, and the lockdowns triggered consumer demand for larger homes.