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Canada GDP expands in October, but inflation dips

3 January 2019 09:55 AM UTC
Canada GDP expands in October, but inflation dips

Canada’s economy was seen expanding in October after posting a decline in the month before. Driving economic expansion was an increase in output by production at factories supported by a rebound in the services sector.

Official data released by Statistics Canada showed that the gross domestic product which measures the goods and services produced in the economy rose 0.3% on the month in October. This account to a seasonally adjusted 1.946 trillion Canadian dollars.

The GDP data beat the market expectations of a 0.2% increase, and on an annualized basis, Canada’s GDP expanded 2.2% in October.

The improved GDP was seen as some comfort for policymakers after the recent string of disappointing economic data. The declines came mainly due to a fall in fuel prices which the Bank of Canada cited as a source of shock to the economy.

In September, Canada’s GDP fell by 0.1% on a monthly basis while the third quarter GDP was seen rising 2.0% on an annualized basis. This was slightly above the Bank of Canada’s forecast, but the data indicated underlying softness in the economy.

The GDP report for the month of October showed that manufacturing activity expanded by 0.7% as it offset the declines in the month of August and September. An increase in the durable and non-durable goods orders was driven by an increase in machinery, chemicals, and food.

The energy sector in Canada managed to rise by 1.3% during the month of October. This came despite the drop in crude oil prices.

The services sector also helped to drive the economy by expanding 0.3% on the month. This marked the best monthly increase since May. The services sector is seen accounting for nearly two-thirds of the overall GDP output for Canada.

Financial services rose by 0.9% on the month with an increase in bond and equity markets while wholesale trade expanded 1% during the period.

Canada's inflation falls 0.4% in November

Consumer prices in Canada fell to the slowest pace in ten months in November. The decline in inflation, however, eases concerns about the Bank of Canada to press ahead with more interest rate hikes.

Data from Statistics Canada showed that consumer prices rose to an annualized rate of 1.7% in November. This was down from 2.4% in October. The decline in consumer prices came amid a fall in gasoline prices. Fuel prices posted the most significant one month drop in nearly four years.

The data was below estimates as analysts forecast that inflation would register a reading of 1.8%.

Inflation data underlined Canada's price pressures which have turned tame. This is likely to see the Bank of Canada not having to rush with rate hikes. This comes amid a soft patch in the economic data as well.

The Bank of Canada is targeting a 2.0% inflation target rate. The BoC Governor, Stephen Poloz, reiterated that policymakers expect borrowing costs to increase eventually.

However, this is likely to not be the case as the recent weakness in crude oil prices which has turned bearish could prompt policymakers to take a dovish stance by putting interest rates on hold.

The inflation data for November comes amid consumer prices peaking to a seven-year high to 3% in July earlier this year. However, the BoC said that this was only temporary.

Fuel prices were seen falling by 5.4% on the year posting the biggest drag on inflation. Despite this, underlying inflation prices continue to remain strong. The core measures were seen averaging around the 2 percent level since February this year. This was a big lift considering core inflation was around 1.5% in 2017.

On a month over month basis, headline CPI was down by 0.4% matching the median estimates. On a seasonally adjusted basis, CPI was down 0.2% marking the most significant monthly decline since May 2017.

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