April 24, 2024, 12:28 PM

A Cooler February for Canadian Retail Sales, Notes Desjardins Economic Studies

The February release came in cooler than anticipated on Wednesday as Canadian retail sales edged down 0.1% m/m in February, a second consecutive monthly decrease after January's 0.3% drop, noted Desjardins Economic Studies (DES).

Higher prices (+0.2%) didn't offset the drag from volumes (-0.3%) on retail sales. The sharp decrease in sales at gasoline stations and fuel vendors (-2.2%) was the main contributor to February's drop in sales.

According to DES, one thing is clear: given the record-high population growth in Q1, Wednesday's retail print -- including the decline in volumes -- suggests per-person spending was even weaker than implied by the headline figure. DES will be watching the March data closely. If the flash estimate proves correct, nominal retail sales likely stalled in Q1 (+0.1% q/q annualized) but declined by 3% on a per capita basis (q/q annualized, population ages 15 and over).

Still, January and February retail showed pockets of resilience. With other data coming in hot in the last few weeks, tracking y DES suggests real annualized gross domestic product (GDP) growth in the range of 2.5% to 3% annualized in Q1.

That's in line with the Bank of Canada's (BoC) latest forecast of 2.8%.

Combined with inflation data pointing to further normalization in consumer price growth in March, two monthly declines in retail sales to begin 2024 suggest the Canadian economy is continuing to weaken in response to higher interest rates, added DES. Consequently, it remained of the view that Canada's central bank is set to reduce its policy rate in June.

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