Canada June retail rise a notch on autos but trend is weak
2023.08.23 12:50
© Reuters. FILE PHOTO: A person shops for meat at a supermarket in Ottawa, Ontario, Canada , March 27, 2023. REUTERS/Patrick Doyle/File Photo
By Steve Scherer and Dale Smith
OTTAWA (Reuters) -Canadian June retail sales grew by 0.1% from the previous month driven mostly by car sales, data showed on Wednesday, a sign of weak consumer spending that could convince the central bank that interest rate hikes are sinking in.
The slight June gain was led by increases at motor vehicle and parts dealers as well as gasoline stations and fuel vendors, Statistics Canada said. Excluding sales of cars and car parts, retail sales declined 0.8% in June.
Economists had forecast June sales would be flat and that they would rise 0.3% excluding autos. Retail sales in July were likely up 0.4%, the agency said in a flash estimate.
“Canadian consumer spending continued to sputter in June,” Tiago Figueiredo, an economist at Desjardins Group, said in a note. “The latest data will probably leave central bankers comfortable keeping rates on hold for the remainder of the year.”
The bank hiked its benchmark overnight rate to a 22-year-high of 5.0% in July after inflation hit a four-decade high of 8.1% last year. It was the 10th increase since March 2022.
After the retail sales release, money markets pared bets for a quarter-percentage-point rate hike in September. They saw a 18% probability after the release of the data, compared with a 27% probability beforehand.
The Bank of Canada (BoC) said it would study data closely before moving again. Since July the data has been mixed. Annual inflation jumped more than expected in July to 3.3%, while the economy unexpectedly shed jobs the same month.
“Although concerns over inflation persistence have yet to abate, the BoC should take confidence that below-potential growth can still guide inflation back to target,” said Jay Zhao-Murray, an FX analyst at Monex Canada, in a note.
The Bank of Canada has projected that inflation would hover around 3% for about a year, before creeping down to its 2% target by the middle of 2025.
The central bank will have second-quarter gross domestic product data, due on Sept. 1, to take into account before the next rate announcement on Sept. 6.
