-- Canada's March Labour Force Survey, released on Friday, continues to point to a lackluster labor market under strain amid multiple economic headwinds, said TD.
Those headwinds are now intensifying, added the bank, noting the sharp increase in global energy prices has fed through to gasoline prices, with March retail prices rising 23% month over month and 8.4% year over year.
The energy shock is hitting the consumer from a weak starting point with higher prices now layering on top of existing cost-of-living pressures that have been weighing on growth and pushing it below potential, said TD. The result is a consumer running on empty, with spending already losing momentum before the shock, it added.
TD noted this dynamic is evident in March's TD Spend data. On a seasonally adjusted monthly basis, spending slowed to 0.2% from 0.6%, which, given the increase in nominal gasoline prices on the month, would be even weaker measured in real terms.
The composition is telling, said the bank. The largest contribution came from gas stations, with nominal spending up 8% on the month and 4.5% on the year. Absent the surge in gasoline spending, both goods and overall card outlays would have declined.
TD noted spending at supermarkets declined, suggesting households are tightening budgets to offset higher fuel costs. Notably, services -- the key support in recent quarters -- were flat, with pullbacks in both travel and recreation.
For policymakers, this creates a familiar dilemma, according to TD. Were it not for the energy shock, the Bank of Canada would likely be discussing rate cuts. Instead, it is likely to remain on hold, looking through the near-term rise in headline inflation and focusing on core pressures and inflation expectations.
In that sense, Canada's relative economic weakness may prove to be an ally, helping to contain second-round effects from this cost-push shock, said the bank.