WRAPUP 1-Canada retail sales unexpectedly drop, inflation steady

By Leah Schnurr
OTTAWA, Nov 20 (Reuters) - Canadian retail sales
disappointed in September, pointing to soft growth heading into
the fourth quarter, while inflation was benign in October,
suggesting the central bank will keep monetary policy on hold
next month even if U.S. rates rise.
Retail sales unexpectedly fell by 0.5 percent due to lower
gasoline prices and a decrease in sales at motor vehicle and
parts dealers, data from Statistics Canada showed on Friday.
Economists had expected a gain of 0.2 percent. Excluding the
effect of price changes, sales volume edged up 0.1 percent.
"This is a soft end to the quarter for retail sales," said
Soctiabank economist Derek Holt. "The slight volume gain was
mildly encouraging but the breadth of the declines reinforced
the headline weakness."
Gasoline station sales tumbled 3.7 percent, to their lowest
since January as consumers paid lower prices at the pump.
Motor vehicle and parts sales dipped 0.5 percent, ending seven
months of gains.
Canada was in a mild recession during the first half of the
year. While growth likely picked up in the third quarter, recent
data pointed to a decline in growth in September.
That suggests the risk recovery will not be as strong as
policymakers had anticipated, said Doug Porter, chief economist
at BMO Capital Markets.
"The third quarter was a mild rebound from the weakness that
we saw in the first half of the year, for a variety of reasons,
but it looks as if the sluggish underlying trend has reasserted
itself here in the fourth quarter," he said.
The Canadian dollar weakened against the greenback
immediately after the report.
Separate data showed the annual inflation rate was 1.0
percent in October, held at the lower end of the central bank's
target range by cheaper energy prices.
The as-expected figures suggest policymakers have room to
stay accommodative. After cutting rates twice this year to
offset the economic damage of lower oil, the central bank is
expected to leave rates on hold when it meets next month.

Prices were higher in seven of the eight major components of
the consumer price index, led by a 4.1 percent increase in food
prices. Transportation was the only decliner, driven by the drop
in gasoline prices.
Core inflation, which strips out volatile items and is
watched by the Bank of Canada, was more robust, staying at a 2.1
percent annual rate.