Canada’s retail sales increased by 0.7% in June compared to May, boosted by higher sales of motor vehicles and parts. However, excluding the automotive sector, retail sales actually declined by 0.1%, indicating an underlying weakness in consumer spending..
According to Statistics Canada, the increase in motor vehicle and parts sales was driven by higher prices, rather than an increase in the number of vehicles sold. Sales at gasoline stations also rose, reflecting the impact of higher fuel prices..
Stripping out the automotive sector, retail sales in June were down 0.1% compared to May. This decline was led by a drop in sales at clothing and accessories stores, which fell by 1.5%. Sales at furniture and home furnishings stores also declined by 0.8%..
The overall trend in retail sales remains weak, with sales in the first half of 2023 growing by just 1.3% compared to the same period in 2022. This is well below the Bank of Canada’s inflation target of 2%..
The weak retail sales data is a sign that Canadian consumers are feeling the pinch from rising interest rates and inflation. With interest rates expected to continue rising in the coming months, consumer spending is likely to remain subdued, which could weigh on economic growth..
In addition to the impact of higher interest rates, consumer spending is also being affected by the ongoing supply chain disruptions and labor shortages that have plagued the economy since the pandemic. These disruptions have led to higher prices and longer delivery times, making it more difficult for consumers to get the goods and services they need..
The Bank of Canada is likely to continue raising interest rates in the coming months in an effort to bring inflation under control. However, the central bank is also aware that higher interest rates could slow economic growth. The bank will need to strike a delicate balance between fighting inflation and supporting economic growth in the months ahead..
