Canada: Retail sales remain resilient in June, weaker in July – CIBC

Data released on Friday showed retail sales in June rose surpassing expectations in Canada, although the preliminary data points to a decline in July. Analysts at CIBC continue to see the Bank of Canada rising rates by 75 basis points at the next meeting in September. 

Key Quotes: 

“With inflation running at a heady pace, nominal retail sales were once again stronger than expected in June, with headline sales growing 1.1%, much above the consensus expectations for a 0.4% gain. May was also revised up a tick. The advance largely reflected growth in gasoline prices, and the increase of 0.2% in volume terms looks far less impressive, though the positive growth is better than anticipated.”

“The advance estimate for July suggests a significant pull back of 2%, likely largely due to the drop in gasoline prices, a sign that if inflation does abate, Canadians might be looking to pocket some of that money rather than accelerate their purchase volumes. Still, for the second quarter, a healthy job market and return to greater activity outside the home meant that retail sales were up 13.6% quarter-over quarter annualized, or 3.5% in volume terms, providing a key source of support for GDP.”

“Retail sales remain more resilient than would have been expected given high inflation, rising interest rates and a shift to service consumption. With the June data, the second quarter as a whole posted strong growth in volume terms which supports our call for robust consumption growth in the quarter. The advance estimate for a decline in July provides some evidence that the expected shift away from goods consumption might finally materialize more meaningfully. The Bank of Canada should nevertheless remain on track for a 75 bps increase in September.”