Canada's imports and exports both reached record highs in May, Statistics Canada said Thursday, the latest sign of strength in the economy ahead of expectations that the central bank may be days away from raising its interest rate target.
The trade deficit doubled to $1.1 billion in May from a $552-million deficit the month before, though that was fuelled by the import of five new airliners. Economists had expected a deficit for May of $530 million, according to Thomson Reuters.
"There is a lot of noise to filter through in today's trade report but we think the message on exports is ultimately positive," Royal Bank economist Josh Nye wrote in a report.
Imports rose 2.4% to $49.8 billion in May, led by a 45.9% increase in the aircraft and other transportation equipment and parts category due to the new airliners.
Exports climbed 1.3% to $48.7 billion, buoyed by shipments of unwrought gold to the United Kingdom.
Exports of energy products including crude oil fell 9.0% to $8.0 billion as both prices and volumes declined. Excluding energy products, exports rose 3.6%.
Nye called it a "solid increase" in non-energy exports for May and noted that they are now up relative to a year ago.
"A price-related decline in oil exports belies what has been a fairly strong increase in energy export volumes year-to-date," Nye said.
"That supports the Bank of Canada's view that adjustment to lower oil prices is now largely complete."
Speculation that the Bank of Canada could raise its key interest rate next week has mounted in recent days. Governor Stephen Poloz recently said that interest rate cuts made in 2015 appeared to have "done their job," noting that the economy enjoyed surprisingly strong growth in the first quarter of this year.
The trade figures came as Statistics Canada also reported that Canadian municipalities issued $7.7 billion worth of building permits in May, up 8.9% from April.
Bank of Montreal chief economist Doug Porter said the overall trade figure was moderately disappointing, but the details in the report were decent.
"Most importantly, trade still looks to make a small positive contribution to second quarter growth and exports hit record highs in both nominal and volume terms in the month," Porter wrote in a research note.
"While it may not be exactly what the doctor ordered, it's likely enough to keep the Bank's expected rate hike on track, especially paired with a whopping 8.9% spike in building permits in the month."