Retail sales in Canada experienced more modest growth than expected in May, indicating a potential decline in consumer resilience due to increased interest rates over the past year. The rise in May was primarily driven by higher vehicle and food and beverage sales. Statistics Canada reported that sales increased by 0.2% from the previous month to a seasonally adjusted $66.03 billion Canadian dollars ($50.13 billion). This figure was weaker than the initial estimate of a 0.5% rise and lower than the revised 1.0% increase seen in April.
Year-Over-Year Comparison
In comparison to the same period last year, retail sales in May were 0.5% higher. However, early indicators from companies suggest that retail sales remained unchanged in June. It should be noted that this figure is based on responses from almost 48% of the surveyed companies and is subject to revision.
Changing Consumer Landscape
The Canadian consumer landscape has experienced some changes recently. While inflation peaked last summer, price pressures for consumers have steadily eased. However, certain items such as groceries continue to have elevated costs. Annual inflation decreased from 3.4% to 2.8% in June, primarily due to a significant drop in gasoline prices compared to the previous year.
While the retail sales growth may not have met expectations, the overall picture suggests that Canadian consumers are facing challenges resulting from higher interest rates and fluctuating prices.
Bank of Canada Raises Benchmark Policy Rate to 22-Year High
The Bank of Canada has implemented another quarter-point increase to its benchmark policy rate, reaching a fresh 22-year high. This decision follows a similar rate hike in June, putting an end to a brief pause in interest rates. While the central bank acknowledges the potential for inflation to experience downward pressure, it notes that households are continuing to spend on goods and services at a steady pace. This can be attributed to a robust labor market, population growth, and savings accumulated during the Covid-19 pandemic.
Retail Sales Surge Led by Motor-Vehicle and Parts Dealers
May’s retail sales recorded a considerable surge driven by higher receipts at motor-vehicle and parts dealers. However, core retail sales, which exclude gasoline stations and vehicle and parts dealers, remained flat compared to April.
Mixed Performance in Various Retail Sectors
While Canadians increased their spending on food and drink, as well as sporting goods, musical instruments, books, and miscellaneous items, weaknesses appeared in general merchandise retailers, building materials and garden equipment suppliers, and clothing, shoes, and jewelry retailers.
Modest Increase in Volume-Adjusted Retail Sales
When analyzing retail sales on a volume or price-adjusted basis, there was a slight 0.1% increase on a monthly basis.
