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By HaleStewart July 16, 2017 10:07 am
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International Economic Week in Review: A Smattering of Data

     With the exception of Canada’s interest rate decision, this week’s news was light.  From a personal perspective, this was fortunate as I was traveling most of the week.

     This week, the Bank of Canada raised interest rates 25 basis points to 75 BP.  Canada had a mild recession in 2015, caused by oil’s price decline:

But the chart above also shows the economy has expanded since then – which the bank noted in its policy announcement:

Canada’s economy has been robust, fuelled by household spending. As a result, a significant amount of economic slack has been absorbed. The very strong growth of the first quarter is expected to moderate over the balance of the year, but remain above potential. Growth is broadening across industries and regions and therefore becoming more sustainable. As the adjustment to lower oil prices is largely complete, both the goods and services sectors are expanding. Household spending will likely remain solid in the months ahead, supported by rising employment and wages, but its pace is expected to slow over the projection horizon.  At the same time, exports should make an increasing contribution to GDP growth. Business investment should also add to growth, a view supported by the most recent Business Outlook Survey.

The bank believes decreasing slack will lead to increase inflationary pressure:

CPI inflation has eased in recent months and the Bank’s three measures of core inflation all remain below 2 per cent. The factors behind soft inflation appear to be mostly temporary, including heightened food price competition, electricity rebates in Ontario, and changes in automobile pricing. As the effects of these relative price movements fade and excess capacity is absorbed, the Bank expects inflation to return to close to 2 per cent by the middle of 2018. 

The BOC is making the same assumption as other central banks -- that low inflation is transitory.  Time will tell if they are correct.

     The only number from the EU was industrial production, which rose .4%:

This week’s number shows that the bullish tone of the Markit surveys that started in 4Q16 has resulted in continued and solid growth.

     The UK unemployment rate was 4.5% while the employment percentage of 74.9% was the highest since the series started in 1971. 

     Japanese industrial production dropped over 3% M/M but increased 6.5% Y/Y.

The Y/Y number have been very encouraging, especially when considered against a backdrop of the BOJ’s stated intent to continue monetary stimulus for the foreseeable future.

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