In April, Canada's total CPI rose by 0.3% month-over-month, mainly driven by increases in gasoline prices and telephone fees, leading to a slight decrease in annual inflation from 2.3% to 2.2%. Retail sales showed a modest 0.6% increase in March, buoyed by improved consumer confidence, though sales excluding autos declined for the second month. The Bank of Canada's upcoming monetary policy decision is expected to be close, as two out of three core inflation measures are above the 2% target despite slowing credit growth.

1.
Canadian CPI Inflation and Retail Sales
CPI: Total CPI rose by a robust 0.3% m/m in April, in line with market expectations. Gasoline prices (+6.8% m/m)
and telephone fees charged by telecom providers (+4.1% m/m) rose sharply. Food prices in restaurants increased by
0.4% in April after surging by 2% during the first three months of 2018; restaurant owners in Ontario are still passing
on the steep minimum wage hike to consumers.
Even though total CPI inflation edged down from 2.3% in March to 2.2% in April, the May 30th BoC monetary policy
decision is likely to be a close call. First, this 2.2% figure is one of the strongest readings since the Fall of 2014.
Furthermore, two of the three core inflation measures watched closely by BoC officials rose by 0.1pp to 2.1%, close
to matching the highest readings observed in the current business cycle (see chart). Finally, our breakdown analysis
of the CPI also indicates a slow and steady generalized upward shift in inflationary pressures. Year-to-date, more
CPI subcomponents increased at a faster pace compared to 2017 (see table below).
Retail Sales: The retail sales report for the month of March mostly contained more disappointing than positive news.
The value of retail sales rose by a respectable 0.6% m/m. Supported by the recent increase in full-time employment
and permanent positions, consumers’ confidence improved this year. Thus, auto sales surged for a second
consecutive month in March (3.2%). Excluding autos, however, retail sales edged down for a second consecutive
month (-0.2% m/m in April). Consumers notably scaled down their purchases of electronic, food and garden
equipment products. All in all, the year-over-year pace of growth in total retail sales stood at 3.5% for the first three
months of 2018, half the pace registered in 2017 (+7.1%).
Bottom Line: Inflation remains within the BoC’s tolerance zone. Growth in both retail sales and household credit
slowed during the first quarter of 2018 despite improving labour market conditions. Furthermore, the U.S., Canada
and Mexico failed to reach a NAFTA deal this week. Altogether, we still think it is preferable for BoC officials to
remain stay sidelines at the May 30th monetary policy decision meeting. This being said, this decision is likely to be a
close call given that two of the three core inflation measures are now above the 2% target.
Sébastien Lavoie | Chief Economist, 514 350-2931 | lavoies@vmbl.ca

2. Economic Research and Strategy
This document is intended only to convey information. It is not to be construed as an investment guide or as an offer or solicitation of an offer to buy or sell any of the securities mentioned in it. The author is an employee
of Laurentian Bank Securities (LBS), a wholly owned subsidiary of the Laurentian Bank of Canada. The author has taken all usual and reasonable precautions to determine that the information contained in this document
has been obtained from sources believed to be reliable and that the procedures used to summarize and analyze it are based on accepted practices and principles. However, the market forces underlying investment value
are subject to evolve suddenly and dramatically. Consequently, neither the author nor LBS can make any warranty as to the accuracy or completeness of information, analysis or views contained in this document or their
usefulness or suitability in any particular circumstance. You should not make any investment or undertake any portfolio assessment or other transaction on the basis of this document, but should first consult your
Investment Advisor, who can assess the relevant factors of any proposed investment or transaction. LBS and the author accept no liability of whatsoever kind for any damages incurred as a result of the use of this
document or of its contents in contravention of this notice. This report, the information, opinions or conclusions, in whole or in part, may not be reproduced, distributed, published or referred to in any manner whatsoever
without in each case the prior express written consent of Laurentian Bank Securities.
below 0% between 0-1% between 1-2% between 2-3% above 3%
2006 35 11 12 12 31
2007 24 9 12 15 40
2008 28 11 16 17 28
2009 38 13 17 13 19
2010 30 16 17 11 26
2011 20 14 16 17 33
2012 30 14 16 17 24
2013 38 12 17 14 19
2014 31 17 17 11 25
2015 20 14 16 17 33
2016 28 14 16 18 25
2017 34 15 15 14 22
Jan-Apr. 2018 30 14 17 15 24
Trend Jan-Apr.18 vs. 17 down slightly down slightly up slightly up slightly up
Source: Statistics Canada, LBS Economic Research and Strategy
Breakdown of Canadian CPI subcomponents by Price Range Movements
(each item classified by the yoy % change, expressed as a % share of CPI subcomponents)