Canada: June Retail Sales Rise Slightly, But Concerns Linger

Canada’s retail sales edged up slightly in June, lifted by a jump in auto sales, but overall consumer spending remained lackluster, keeping alive concerns about the health of the economy..

Retail sales volumes increased by 0.6% in June compared with the previous month, Statistics Canada said on Tuesday, after two consecutive monthly declines. Sales were up 2.5% compared with June 2022..

Economists polled by Reuters had expected a 1.0% increase for June..

Motor vehicle and parts dealers led the gains, with sales rising 4.8% in June after falling 3.3% in May. Sales at gasoline stations also increased by 1.9%, helped by higher fuel prices..

Excluding autos, retail sales rose by a more modest 0.2% in June, which is still below the average monthly gain of 0.4% seen over the past year..

Core retail sales, which exclude gasoline and motor vehicles, also increased by 0.2% in June, matching the May increase..

Despite the slight uptick in June, retail sales have been trending lower in recent months, reflecting the impact of higher interest rates and inflation on consumer spending..

The Bank of Canada has raised interest rates by 250 basis points since March in an effort to tame inflation, which hit a four-decade high of 8.1% in June. The central bank is widely expected to deliver another rate hike at its next meeting in September..

Higher interest rates make it more expensive for consumers to borrow money, which can weigh on spending. Inflation is also eroding the purchasing power of consumers, making it more difficult for them to afford non-essential items..

The uneven recovery in retail sales is also a concern. Sales at clothing and accessories stores fell by 1.1% in June, while sales at furniture and home furnishings stores declined by 1.0%. Sales at electronics and appliance stores also decreased by 0.7%..

These declines suggest that consumers are becoming more cautious about spending on discretionary items..

The data released on Tuesday also showed that retail sales in May were revised down to a 0.3% decline from a previously reported 0.1% increase..

Overall, the retail sales data provides a mixed picture of the Canadian economy. While the slight increase in June is a positive sign, the overall trend remains weak, and consumers are still facing significant headwinds from higher interest rates and inflation..

The Bank of Canada is likely to continue raising interest rates in the coming months, which could further weigh on consumer spending. As a result, the outlook for retail sales remains uncertain in the near term..

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