BC Economic Snapshot January 26, 2013

---

VANCOUVER, BC, Jan. 26, 2013/ Troy Media/ – Consumer price inflation in British Columbia rose in December following a sharp November pull-back but held near three-year lows.

Twelve-month growth in the consumer price index (CPI) rebounded to 0.4 per cent in December, from the previous month’s microscopic reading of 0.1 per cent. December’s lift in annual inflation partly reflected a base-year effect as gasoline prices recorded a relatively sharper decline in same-month 2011.

The decelerating pace of annual inflation over the past year has reflected subdued conditions in both the local and broader economies. Adjusted for seasonal factors, consumer prices have drifted lower since April.

A slump in North American natural gas prices and an easing of home prices led to a 12-month drop in shelter related prices of 0.6 per cent, while gasoline prices were down 1.9 per cent from a year prior. Food prices, which were up 1.3 per cent from December 2011, continued to exert positive pressure on inflation, but the pace of growth decelerated through 2012.

Despite an easing of prices for most of 2012, average full-year inflation still reached 1.1 per cent. Consumer prices are forecast to grow at a similar pace this year, but gains will reflect rising prices as the year progresses. While the switch back to the PST is expected to causing a one-time drop of about 0.3 per cent in the CPI, the tax impact will be offset by global-economy led gain in food and energy prices.

Retail
Led by a gain in Metro Vancouver, B.C. retail sales volume edged higher in November to a seasonally-adjusted $5.093 billion, marking a 0.27 per cent increase from the previous month. However, sales estimates for both September and October were revised lower and the weaker baseline contributed to the modest gain.

Retail sales volume has generally held steady since June following an early-year downtrend but year-to-date sales growth continued to recede, falling to 2.7 per cent through November. November’s weak performance highlights the difficult terrain retailers are traversing.

Sluggish home sales, weak employment and population growth, and elevated household debt have combined to constrain spending in the economy. Electronic and appliance sales were down nearly 5 per cent from the first 11 months of 2011, while furniture/furnishing sales also remained low. Excluding motor vehicle and gasoline sales, general retail sales have trended lower since the first quarter.

The picture is even weaker when stripping out price effects. Estimated constant-dollar retail sales fell about 1.5 per cent from the beginning of 2012 as households clamped down on discretionary spending. The retail sector has moved only slightly more product than it did in early 2010 despite a larger population base and recent levels are similar to late-2007.

Tourism
B.C.’s retail and accommodations and food services industries haven’t found much support from the ailing tourism sector in recent years, and that trend persisted through 2012.

Following a mild but brief uptrend in the number of international visitors to B.C., entries slumped in November to the lowest level since July. International visitors to B.C. fell 3 per cent from October to a seasonally-adjusted 346,050, down 3 per cent from October as overseas visits fell 5.5 per cent, and U.S. visits fell 1.9 per cent. A steep decline in visitors from recessionary Europe drove the overseas decline. Through November, total international visits were up by 1.2 per cent from same-period 2011 but were on track for the third lowest year since 2000.

While November’s tumble may be a blip, the underlying theme hasn’t changed. There has been little upward momentum in international tourism to B.C. since the recession, owing large part to the weak state of the U.S. labour market, high Canadian dollar, and global economic uncertainty.

The current trend of about 350,000 monthly visits is well below mid-decade levels of about 410,000 monthly visits, and largely reflects fewer U.S. visitors. Going forward, these headwinds will continue to hamper a rebound in the tourism sector, but ongoing recovery in the U.S. economy and labour market and a continuation of robust demand from a number of Asian markets, particularly China, should support a positive trend in visits in 2013. Travel from Asia to B.C. was up 3 per cent in 2012 over the first 11 months of the year, with travel from China jumping 19 per cent. In contrast, weak economic conditions will continue to constrain demand from European markets.

| Central 1 Credit Union