Canadian retail sales dropped for the second consecutive month in February, falling short of expectations. The decline was led by reduced sales at gasoline stations and fuel vendors.
According to Statistics Canada, retail sales shrank by 0.1 per cent in February, following a 0.3 per cent contraction in January. Preliminary estimates suggest March sales are likely to remain unchanged. These consecutive declines reflect ongoing economic strain from high interest rates.
Analysts had anticipated a 0.1 per cent increase in February retail sales, but in volume terms, sales fell by 0.3 per cent. Although the Canadian economy saw positive growth in January and is expected to be positive in February, the pace of growth has been weak due to pressure from near 23-year high interest rates, according to Reuters.
The Bank of Canada (BoC) maintained its key overnight rate at 5 per cent this month for the sixth consecutive time but indicated a possible rate cut in June.
Market sentiment regarding a June cut is uncertain, while a 25 basis-point cut in July is fully anticipated. Following the release of retail sales data, the Canadian dollar weakened slightly against the US dollar.
Canada’s annual inflation rate rose to 2.9 per cent in March, but underlying price pressures eased for a third consecutive month. Inflation has remained within the BoC’s 1-3 per cent target range since January, with the bank aiming to keep it at 2 per cent, the midpoint of the range.
Robert Kavcic, senior economist at BMO Capital Markets, noted to the challenges Canadian consumer spending faces due to past rate hikes. He suggested that if inflation continues to decline, the BoC may consider a rate cut in June.
While motor vehicle sales increased by 0.5 per cent, overall retail sales were dragged down by declines in various sub-sectors including furniture, home furnishings, electronics, clothing, clothing accessories, and building materials. Core retail sales, excluding gasoline stations, fuel vendors, and motor vehicle dealers, remained unchanged in February.
Total retail sales in February amounted to C$66.67 billion ($48.65 billion), with contraction observed in five of the nine sub-sectors, according to Statscan.
