Retail sales flatlined in the second quarter while sales volume dropped 0.8 per cent, Statistics Canada said on Aug. 23, signs that economic activity is weakening as the Bank of Canada’s rate hikes take a deeper hold.
Sales increased 0.1 per cent to $65.9 million in June, led by spending at auto and parts dealers, which grew 2.5 per cent. Excluding those sales and those at gas stations, core retail sales decreased 0.9 per cent in June and 0.2 per cent in volume terms.
“The latest data continues to point to weaker economic growth going forward, which is in line with what the Bank of Canada is expecting,” Desjardins economist Tiago Figueiredo said in a note. “As such, the latest data will probably leave central bankers comfortable keeping rates on hold for the remainder of the year.”
Annualized retail sales in the second quarter dropped 0.1 per cent, a “notable step down” from the 2.6 per cent recorded in the first quarter, Toronto-Dominion Bank economist Maria Solovieva said in a note.
Policymakers will be scrutinizing retail data for signs of excess demand when they meet for the Sept. 6 interest rate decision. The Bank of Canada has raised interest rates 10 times since early 2022 to bring supply and demand back in balance, but a resurgence in inflation in July has added a layer of uncertainty to the central bank’s next move.
Still, economists are calling for another pause in September as unemployment has increased by half a percentage point since April to 5.5 per cent in July, suggesting people’s spending power is dwindling, although Statistics Canada’s advance estimate of retail sales for July shows a 0.4 per cent increase.
In June, sales at gas stations rose 0.3 per cent due to higher prices, but dropped 1.4 per cent
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