Big downside miss in Canada retail sales will overshadow the small CPI upside surprise

The two big releases for Canada this week flashed mixed results, as CPI inflation was a tad stronger than expected in May while retail sales were considerably weaker than expected in April, perhaps weighed by the Target closure that month.

While the retail sales report is a flakier indicator, with plenty of volatility and a bit dated, its big downside miss will overshadow the small upside surprise on the more important CPI release. Overall, BoC is largely looking past the gyrations in both headline and core inflation, and instead is likely more concerned about the sluggish growth backdrop --- a concern that will be slightly deepened by soft retail spending.

"Like many other indicators early this year, we suspect these soft retail results were somewhat polluted by the Target closure (in mid-April), but drive home the point that overall growth has taken a step back due to the heavy weight from lower oil prices. On the flip side, while oil prices remain low, gasoline prices are mounting a spirited comeback and look to push inflation a bit higher yet in coming months." notes BMO Capital Markets