**Canadian retail sales edged up 0.6% in June, Statistics Canada said on Thursday, driven by higher sales at motor vehicle and parts dealers, indicating a modest recovery in consumer spending following two months of declines.**
The increase was in line with analysts’ expectations of a 0.6% increase, according to a Reuters poll, and followed a revised 2.0% drop in May.
Motor vehicle and parts dealers saw a 2.7% increase in sales in June, after a 1.5% decline in May. Sales at gasoline stations rose 2.1%, after falling 5.8% in May.
Excluding motor vehicles and parts, retail sales were up 0.3%, after a 0.5% decline in May.
Core retail sales, which exclude gasoline stations and motor vehicle and parts dealers, rose 0.2% in June, after falling 0.6% in May. This measure is closely watched by the Bank of Canada as an indicator of underlying consumer demand.
On a year-over-year basis, retail sales were up 3.4% in June, compared with a 4.3% increase in May.
Despite the modest increase in June, retail sales have been trending lower in recent months. In the first half of 2023, retail sales were up just 1.3%, compared with a 5.7% increase in the same period of 2022.
The Bank of Canada has raised its benchmark interest rate four times this year in an effort to tame inflation, which hit a 40-year high of 8.1% in June. Higher interest rates make it more expensive for consumers and businesses to borrow money, which can weigh on spending.
The central bank has said it is prepared to raise rates further if necessary to bring inflation back to its 2% target. However, it is also mindful of the impact of higher rates on economic growth.
The latest retail sales figures suggest that consumers are starting to pull back on spending, which could put further pressure on the Bank of Canada to slow the pace of interest rate hikes.
[Source: Statistics Canada](https://www150.statcan.gc.ca/n1/daily-quotidien/230825/dq230825a-eng.htm).
