Canada’s retail sales declined in July due to rate increases

Canadian retail sales declined more than anticipated in July, but they may rebound slightly in August, Statistics Canada data revealed on Friday. This indicates that interest rate increases by Bank of Canada are slowing consumer spending.

Statistics Canada data revealed that July’s retail sales declined 2.5%, which was the first drop in seven months. It also missed analyst predictions of a slump of 2.0%. The decrease was driven by lower gasoline prices, while sales volumes also fell 2.0%.

An initial estimate indicated that August retail sales rose 0.4%.

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Karyne Charbonneau (executive director of economics at CIBC Capital Markets), stated in a note that “Canadians might have started to respond to higher interest rates.”

The Bank of Canada raised its policy rate by 75bps to 3.25% earlier in the month. It also stated that it expects further increases. In six months, it has increased its policy rate by 300 basis points.

Royce Mendes, chief of macro strategy at Desjardins Group, stated that while consumers may be reducing their spending, the demand for Canadian goods and services is still exceeding supply.

“The Bank of Canada must continue to hike rates. However, it gives us more confidence that a 50bp increase in October will be our final increase in this cycle,” he wrote in a note.

The money markets expect a 50 basis point increase in October, and a 25 basis point move by year’s end to bring the rate up to 4.0%.

The Canadian dollar traded 0.3% lower at 1.3528 against the greenback, or 72.92 U.S.cents.

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