By Promit Mukherjee
OTTAWA (Reuters) - Canada's retail sales contracted for the second consecutive month in February, missing expectations, data showed on Wednesday, led by a drop in sales at gasoline stations and fuel vendors.
Retail sales decreased 0.1% in February after a 0.3% contraction in January, Statistics Canada said, adding a preliminary estimate showed that sales were likely to remain unchanged in March.
Two back-to-back months of falls in retail sales reflect the continued strain on the economy from high interest rates.
Analysts polled by Reuters had forecast a 0.1% rise in retail sales in February. In volume terms, however, sales fell 0.3% in February.
The Canadian economy has managed to post positive growth in January and is expected to be positive in February too, but the rate of growth has been weak as consumers and businesses buckle under the pressure of rates at a near 23-year high.
The Bank of Canada (BoC) kept its key overnight rate unchanged at 5% earlier this month, the sixth time in a row, but said that a rate cut in June was a possibility.
Markets view the chance of a June cut as a coin toss, while a 25 basis-point cut in July is fully priced in..
The Canadian dollar weakened slightly after the retail sales data, with the loonie trading 0.40% weaker than the U.S. dollar at 1.3716, or 72.91 U.S. cents.
Canada's annual inflation rate ticked up to 2.9% in March, but the central bank's closely watched measures of underlying price pressures eased for a third straight month.
Inflation has stayed under 3% since January, within the BoC's 1%-3% target range. The bank's aim is to keep inflation at 2%, the mid-point of the range.
"Canadian consumer spending continues to struggle with the impact of past rate hikes... one has to view these trends as sluggish when the country is cranking out historic population growth," said Robert Kavcic, senior economist at BMO (TSX:BMO) Capital Markets.
If inflation continues to decline, BoC will have a June rate cut chance on the table, he said.
Motor vehicle sales, which account for more than a quarter of total sales, the biggest chunk, rose by 0.5%, but the total was pulled down by a broad-based drop across several sub-sectors, the statistics agency said.
Lower sales were recorded at retailers of furniture, home furnishings, electronics, clothing and clothing accessories, and building materials, among other things, it added.
Core retail sales, which exclude gasoline stations and fuel vendors, and motor vehicle and parts dealers, were unchanged in February.
Retail sales in February totaled C$66.67 billion ($48.65 billion), with a contraction in five of the nine sub-sectors, Statscan said.
($1 = 1.3705 Canadian dollars)