Canada’s retail sales edged up by 0.6% in June compared to May, Statistics Canada reported on Friday, marking the third consecutive monthly increase. However, the overall trend remains weak, with sales still 1.5% below pre-pandemic levels.
The increase in June was largely driven by higher sales at motor vehicle and parts dealers, which rose by 2.6%. This was partially offset by declines in sales at gasoline stations (-2.9%) and clothing and accessories stores (-1.3%).
On a year-over-year basis, retail sales increased by 3.0% in June compared to June 2022. This was driven by higher sales in seven of 11 subsectors, with the largest contributions coming from motor vehicle and parts dealers, and food and beverage stores.
Despite the modest increase in June, retail sales remain well below the pre-pandemic peak in February 2020. In real terms, excluding price changes, retail sales are still down by 1.5% compared to February 2020.
The Bank of Canada has been raising interest rates aggressively to combat inflation, which is currently running at a four-decade high. Higher interest rates make it more expensive for consumers to borrow money, which could lead to a slowdown in consumer spending and retail sales.
Retail sales are a key indicator of consumer spending, which accounts for about two-thirds of Canada’s economic activity. The weak trend in retail sales suggests that consumers are becoming more cautious about spending amid rising inflation and interest rates.
The Bank of Canada is expected to continue raising interest rates in the coming months, which could further weigh on consumer spending and retail sales. However, the central bank has also indicated that it will be data-dependent in its decision-making, and could pause its rate hike cycle if it sees signs that inflation is cooling and the economy is slowing down.
The latest retail sales data will be closely watched by the Bank of Canada as it considers its next interest rate decision in September..
