Confusion abounds

I hope no-one ever told Bank of Canada Governor Stephen Poloz that the job would be easy, because with the data flow we are seeing these days, it surely isn't.  Take the three reports we saw from Statistics Canada this morning....

First, headline CPI jumped 2.3 percent in the year to March, the biggest year-on-year increase since October 2014.  In this week's monetary policy press release, the Bank indicated that it believes temporary factors, notably gasoline prices, are behind the current spike, and the StatsCan data offer some support for that: excluding gasoline, the increase in CPI for March was 1.8 percent, the same as in February.  The Bank's arcane "preferred definitions" of CPI showed little movement in March, remaining tightly spaced around the 2 percent target rate.  There is little reason to expect gasoline prices to ease any time soon -- rather the opposite, in fact -- so it remains to be seen how long the Bank will be able to justify "looking through" that factor in its policy decisions.

Separately, StatsCan reported today that the number of (un)employment insurance beneficiaries fell in February to the lowest level seen since at least 1997.  This is a remarkable statistic, given the steady growth in the labour force over the past two decades. The number of beneficiaries has fallen by 13 percent in the last year.  The fall in the number of people receiving these benefits is a clear indication of the tightness in the labour market, and can only heighten the Bank's wariness over the possible direction of wages.

Last, and most puzzling, retail trade. StatsCan reported today that retail sales rose 0.4 percent in February (0.3 percent in real terms), led by auto sales. However, the agency also made significant downward revisions to data for the preceding three months.  Given the importance of retail spending to the Canadian economy as a whole, the revisions underscore the extent to which growth slowed at the end of last year.

The Bank this week restated its intention to continue tightening its policy settings in the months ahead, citing an expectation that growth would regain momentum in the current quarter and beyond.  Today's data, which look uncomfortably like a mild version of that old bugaboo "stagflation", may put that resolve to the test.