The Bank of Canada's increased interest rates appear to be tightening household budgets, leading to a decline in consumer spending. Preliminary data from Statistics Canada showed a 0.3% decrease in retail sales for August, marking the first drop since March. This downturn follows a less-than-expected 0.3% rise in July, falling short of the anticipated 0.4% increase.
In July, seven out of nine subsectors reported sales growth, with food and beverage retailers recording substantial increases. Conversely, motor vehicle and parts dealers experienced the sharpest decline that month, their first in four months. If this sector is excluded, retail sales saw a 1% increase in July, doubling expectations.
However, retail sales measured by volume dipped by 0.2% in July, suggesting that Canadian households may be tightening their budgets due to factors such as mortgage payment renewals and high fuel costs. On September 6, the Bank of Canada maintained its borrowing costs, citing evidence that higher rates are effectively slowing economic and consumption growth.
After a five-month pause, the central bank resumed hiking interest rates in June and July following observed strength in household spending earlier this year. The next rate decision is expected on October 25, with most economists predicting the bank will maintain its current stance.
On a regional level, five provinces reported increased sales in July, led by Quebec and British Columbia. Ontario, however, recorded the largest provincial decrease due to lower sales at motor vehicle and parts dealerships.
Statistics Canada noted that approximately 17% of Canadian retailers were affected by the strike at British Columbia ports in July. The most substantial estimated impact on unadjusted sales in dollar terms was seen at motor vehicle and parts dealerships. The agency did not provide further details on their August estimate which was based on responses from slightly less than half of the surveyed companies.
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