Data released on Friday showed retail sales dropped in Canada during December by 1.8%, a decline smaller than market forecast of 2.1%. Analysts at CIBC,  point out price increases contribute more to the headline number than they typically do and the data don't look quite as impressive in volume terms. They added the rebound in January may have reflected households once again spending more on goods due to many services being temporarily closed to stem the Omicron wave.

Key Quotes: 

“Canadian retail sales see-sawed into the New Year, with December's fairly sharp decline followed by a strong estimated rebound in January. However, with price increases contributing more to these headline sales figures than they typically do, the data don't look quite as impressive in volume terms, and the rebound in January may have reflected households once again spending more on goods due to many services being temporarily closed to stem the Omicron wave.”

“There was good news from the advance data for January, which pointed to a rebound of 2.4% in overall retail sales. In nominal terms that would more than offset the decline in December, but after accounting for price increases the volume of sales in January was likely still well short of where it stood in November. Still, much like the US figures earlier this week, the pop higher in January is probably better than anticipated given at least some reduction in foot-traffic due to the Omicron wave.”

“The rebound in sales estimated for January, while likely much more modest in price-adjusted terms, was somewhat better than we had anticipated. That will provide at least a partial offset within monthly GDP to the declines other services industries would have seen as restrictions tightened during the Omicron wave, and could signal upside risk to our current Q1 GDP forecast. However, with so much uncertainty still regarding the scale of the decline seen within other service industries during January, and whether recent transportation disruptions will negatively impact the overall rebound in growth during February, we won't be revising our forecast at this stage.”
 

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