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Canada’s Inflation Rate Slumps to Lowest in Two Years; Retail Sales Slip



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Canada’s inflation rate slumped to its lowest in more than two years in August, as tepid consumer prices added to the chorus of disappointing economic signs that have dogged the country for months.

Statistics Canada reported that the country’s consumer price index rose 0.1 per cent in August from July, but the year-over-year inflation rate slipped to 1.1 per cent, up from 1.3 per cent the previous month. The closely watched core inflation measure, which excludes the eight most volatile components of CPI (including many food and energy goods), was 1.8 per cent, its lowest reading since July 2014.

Economists had expected overall CPI inflation of 1.4 per cent, and a core reading of 2.0 per cent.

The Canadian dollar fell half a cent against its U.S. counterpart on the news, to about 76.2 cents (U.S.), as the inflation slowdown substantially reduces pressure on the Bank of Canada to consider raising interest rates any time soon.

“It is safe to say there was a complete absence of pricing pressures to worry about in the August inflation numbers. That lines up with the Bank of Canada’s recent shift to sounding a bit more worried about Canada’s economy, and hence the outlook for inflation,” said Toronto-Dominion Bank senior economist Leslie Preston in a research note.

The central bank uses a 2 per cent inflation target as the basis for setting its rate policy, relying particularly on the less volatile core measure to guide its assessment of underlying inflation pressures. Despite an uneven and often disappointing pace in the economy – punctuated by the second quarter’s decline in real gross domestic product of 1.6 per cent annualized – core inflation had been running above the 2 per cent target for the past five months. August’s downturn finally bore the scars of those economic stumbles.

In its most recent interest-rate decision, in early September, the Bank of Canada said inflation risks had “tilted tilted somewhat to the downside since July,” citing the sluggish Canadian and global economies and disappointing Canadian exports.

Much of the weakness in the August inflation numbers came from food, down 0.6 per cent from July, and gasoline, down 0.9 per cent.

The travel component fell 0.8 per cent month over month, as weak domestic economic conditions and the upswing in the Canadian dollar earlier in the year weighed on the tourism business.

The Bank of Canada has long expected Canada’s inflation pace to cool, as the effects of last year’s slump in the Canadian dollar fades from the CPI numbers. Nevertheless, economists noted that inflation in the services sector – which is largely domestically based and therefore little affected by currency movements – cooled to 1.8 per cent in August from 2.1 per cent in July, suggesting the sluggish domestic economy is also weighing on pricing.

Statscan reported Friday that Canada’s retail sales in July were down 0.1 per cent from June, well short of economists’ expectations of a gain of 0.1 per cent in the month. It was the third straight month without a gain, as May and June sales were flat. The decline was mainly due to lower gasoline prices, but the weakness was nevertheless fairly broad-based, with declines in five of 11 sectors.

On a volume basis, excluding the effects of price changes, retail sales rose 0.3 per cent in the month – an encouraging sign of firm demand. Nevertheless, the tepid retail numbers are another indication of an economy that isn’t firing on all cylinders.

“The overall message is one of a slow-motion machine for both Canadian growth and inflation,” said Bank of Montreal chief economist Douglas Porter.

He said the inflation downturn “is far from enough” to prompt the Bank of Canada to consider an interest-rate cut, but suggested that the pull-back in the core rate to below the central bank’s 2-per-cent target gives it a little bit of breathing room.

“The sag in core inflation does remove one potential obstacle if another nasty shock erupts and the BoC needs to respond.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and, with over a decade experience in the global financial markets.

Crude Oil

Oil Posts 2% Gain for the Week Despite India Virus Surge



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Oil prices steadied on Friday and were set for a weekly gain against the backdrop of optimism over a global economic recovery, though the COVID-19 crisis in India capped prices.

Brent crude futures settled 0.28% higher at $68.28 per barrel and U.S. West Texas Intermediate (WTI) crude advanced 0.29% to $64.90 per barrel.

Both Brent and WTI are on track for second consecutive weekly gains as easing restrictions on movement in the United States and Europe, recovering factory operations and coronavirus vaccinations pave the way for a revival in fuel demand.

In China, data showed export growth accelerated unexpectedly in April while a private survey pointed to strong expansion in service sector activity.

However, crude imports by the world’s biggest buyer fell 0.2% in April from a year earlier to 40.36 million tonnes, or 9.82 million barrels per day (bpd), the lowest since December.

In the United States, the world’s largest oil consumer, jobless claims have dropped, signalling the labour market recovery has entered a new phase as the economy recovers.

The recovery in oil demand, however, has been uneven as surging COVID-19 cases in India reduce fuel consumption in the world’s third-largest oil importer and consumer.

“Brent came within a whisker of breaking past $70 a barrel this week but failed at the final hurdle as demand uncertainty dragged on prices,” said Stephen Brennock at oil brokerage PVM.

The resurgence of COVID-19 in countries such as India, Japan and Thailand is hindering gasoline demand recovery, energy consultancy FGE said in a client note, though some of the lost demand has been offset by countries such as China, where recent Labour Day holiday travel surpassed 2019 levels.

“Gasoline demand in the U.S. and parts of Europe is faring relatively well,” FGE said.

“Further out, we could see demand pick up as lockdowns are eased and pent-up demand is released during the summer driving season.”

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Lagos Commodities and Futures Exchange to Commence Gold Trading



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With the admission of Dukia Gold’s diversified financial instruments backed by gold as the underlying asset, Lagos Commodities and Futures Exchange is set to commence gold trading.

According to Dukia Gold, the instruments will be in form of exchange-traded notes, commercial papers and other gold-backed securities, adding that it will enable the company to deepen the commodities market in Nigeria, increase capacity, generate foreign exchange for the Nigerian government to better diversify foreign reserves and create jobs across the metal production value chain.

Tunde Fagbemi, the Chairman, Dukia Gold, disclosed this while addressing journalists at Pre-Listing Media Interactive Session in Lagos on Thursday.

He said, “We are proud to be the first gold company whose products would be listed on the Lagos Futures and Commodities Exchange. The listing shall enable us facilitate our infrastructure development, expand capacity and create fungible products.

“This has potential to shore up Nigeria’s foreign reserve and create an alternative window for preservation of pension funds. A gold-backed security is a hedge against inflation and convenient preservation of capital.”

“As a global player, we comply with the practices and procedures of London Bullion Market Association and many other international bodies. Our refinery will also have multiplier effects on the development of rural areas anywhere it is located,” he added.

Mr Olusegun Akanji, the Divisional Head, Strategy and Business Solutions, Heritage Bank, said the lender had created a buying centre for verification of quality and quantity of gold and reference price to ensure price discovery in line with the global standard.

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Crude Oil

Oil Nears $70 as Easing Western Lockdowns Boost Summer Demand Outlook



Crude oil

Oil prices rose for a third day on Wednesday as easing of lockdowns in the United States and parts of Europe heralded a boost in fuel demand in summer season and offset concerns about the rise of COVID-19 infections in India and Japan.

Brent crude rose 93 cents, or 1.4%, to $69.81 a barrel at 1008 GMT. U.S. West Texas Intermediate (WTI) crude rose 85 cents, or 1.3%, to $66.54 a barrel.

Both contracts hit the highest level since mid-March in intra-day trade.

“A return to $70 oil is edging closer to becoming reality,” said Stephen Brennock of oil broker PVM.

“The jump in oil prices came amid expectations of strong demand as western economies reopen. Indeed, anticipation of a pick-up in fuel and energy usage in the United States and Europe over the summer months is running high,” he said.

Crude prices were also supported by a large fall in U.S. inventories.

The American Petroleum Institute (API) industry group reported crude stockpiles fell by 7.7 million barrels in the week ended April 30, according to two market sources. That was more than triple the drawdown expected by analysts polled by Reuters. Gasoline stockpiles fell by 5.3 million barrels.

Traders are awaiting data from the U.S. Energy Information Administration due at 10:30 a.m. EDT (1430 GMT) on Wednesday to see if official data shows such a large fall.

“If confirmed by the EIA, that would mark the largest weekly fall in the official data since late January,” Commonwealth Bank analyst Vivek Dhar said in a note.

The rise in oil prices to nearly two-month highs has been supported by COVID-19 vaccine rollouts in the United States and Europe.

Euro zone business activity accelerated last month as the bloc’s dominant services industry shrugged off renewed lockdowns and returned to growth.

“The partial lifting of mobility restrictions, the expectation that tourism will return in the near future, and the lure of the psychologically important $70 mark are all likely to have contributed to the price rise,” Commerzbank analyst Eugen Weinberg said.

This has offset a drop in fuel demand in India, the world’s third-largest oil consumer, which is battling a surge in COVID-19 infections.

“However, if we were to eventually see a national lockdown imposed, this would likely hit sentiment,” ING Economics analysts said of the situation in India.

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