Global equity markets ticked lower over the week ended August 19 as investors considered the potential for global central banks, including the U.S. Federal Reserve Board, to maintain their aggressive tightening policies. The S&P/TSX Composite Index declined, hindered by weakness in the Information Technology sector. In the U.S., the S&P 500 Index fell, dragged down by the Communication Services sector. Oil and gold prices moved lower. Yields on 10‑year government bonds in Canada and the U.S. rose over the week.
Canada’s inflation rate eases
Canada’s headline inflation rate eased in July, but the core inflation rate ticked higher, suggesting the Bank of Canada may stay on an aggressive rate hike path at upcoming meetings.
Canada’s year-over-year inflation rate was 7.6% in July, matching economists’ expectations. The rate was slower than June’s 8.1% increase.
The relatively tamer inflation rate came amid a slowdown in gasoline prices, which rose 35.6% year-over-year compared to the 54.6% increase in June.
Based on the average of core measures, Canada’s core inflation rate, which excludes volatile energy and food prices, ticked higher to 5.3% in July.
Retail sales advance but outlook negative
Retail sales in Canada exceeded expectations in June, but the outlook for July might not be as positive.
Retail sales in Canada rose by 1.1% in June, higher than the 0.4% increase economists expected. It was the sixth consecutive month of rising retail sales.
Higher sales at gasoline stations and for motor vehicles and parts more than offset a decline in sales at electronics and appliances stores.
Statistics Canada estimated July’s retail sales fell by 2.0%, as elevated inflation and higher rates may have weighed on Canadian consumers.
Lower gas prices redirect spending
After increasing by 0.8% in June, retail sales in the U.S. did not change in July (0.0%), largely in response to lower sales at gasoline stations as prices declined.
Sales at electronics, appliance and miscellaneous stores advanced over the month, as the savings at the pump were directed to spending elsewhere.
Conversely, sales at clothing, accessories and department stores shrank during the month.
Weakening conditions prompt rate reduction
China’s July retail sales rose by 2.7% over the same month in the previous year, slowing from the 3.1% increase in June.
Domestic demand was not the only key economic indicator to lag in July, as industrial production in China slowed from an annual pace of 3.9% to 3.8%.
The slowdown in these two key metrics points to an overall decline in China’s economy, which has been hindered by ongoing supply chain disruptions and lockdown restrictions.
To help support its economy and try to boost growth, the People’s Bank of China reduced its one-year medium-term lending facilities interest rate by 10 basis points to 2.75%.
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