Canadian consumers remain resilient as December retail sales rise in January

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Canadians kept their wallets open and continued to spend in January, according to early estimates, another sign that consumers remain resilient to high inflation and interest rates.

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Statistics Canada released preliminary data on February 21 that suggested Retail sales they rose 0.7 percent last month and gained strength from December, when retail sales rose 0.5 percent. In terms of volume, total sales increased by 1.3 percent in the final month of 2022.

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The largest increases in December were seen in purchases from auto and parts dealers, up 3.8 percent, and general merchandise stores, up 1.7 percent.

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“Some of the resilience in the headline was due to strong auto sales as improved auto production helped clear the backlog. Consumers also received some relief from financial headwinds at the end of the year, marked by a significant decline in gasoline prices,” Ksenia Bushmeneva, an economist at Toronto-Dominion Bank, wrote in a note.

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The Bank of Canada will keep an eye on Canadians’ spending as it tries to reduce inflation with interest rates. The The consumer price index rose by 5.9 percent in JanuaryStatistics Canada’s report on Feb. 21 was much slower than December’s 6.3 percent gain and evidence that the central bank’s efforts are working, even as the labor market proves resilient. Canadian employers hired more than 200,000 workers in December and January.

The Statistics Canada report on retail sales showed that building materials suppliers and garden equipment dealers saw the biggest declines among major retail categories. “Sales declined for four consecutive months amid higher interest rates and deteriorating housing market conditions,” the agency said in a report.

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E-commerce sales fell again since November, down 2.4 percent year-on-year and accounting for 6.5 percent of total retail sales.

Royce Mendes, head of macro strategy at Desjardins Capital Markets, said in a note to clients that much of the strength in retail could be “ephemeral” once writers send out customer backlogs.

“As a result, we view today’s data as consistent with the Bank of Canada’s forecast that the economy is expected to slow this year, an outcome that should allow central bankers to remain on the spot in the coming months.”

Bushmeneva noted that if the labor market and consumer spending continue to deliver gains, the central bank may have to reconsider its decision to keep interest rates unchanged.

“If the surprising data and the resilience of consumer spending and employment continue, they could eventually force the Bank of Canada to end its hiatus and return to the fight against inflation,” Bushmeneva wrote.

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