Data released on Friday showed a 2.5% decline in Canada Retail sales a larger-than-expected slip in July. CIBC analysts still see the Bank of Canada (BoC) raising its key interest rate by 50 basis points in October.
“After months of gains, Canadian retail sales fell more than expected in July as Canadians may have started to react to higher interest rates. Total sales fell 2.5% in July, below consensus expectations for a 2% decline. In terms of volume, retail sales fell 2%.
“Retail sales have been more resilient than expected over the past few months, given high inflation, rising interest rates and a shift to service consumption. The weaker-than-expected July data finally provides some evidence that the expected shift away from goods consumption and the impact of higher rates is beginning to play out more significantly. This is the type of data the Bank of Canada will be looking for as it enters the final phase of its tourism cycle.”
“We continue to expect another 50 basis point hike in October before further evidence of a cooling economy allows the Bank to suspend rate hikes.”