More rate cuts needed to sustain retail momentum, experts say
Statistics Canada said Friday that retail sales rose 0.9 per cent to $66.4 billion in July, helped by stronger new car sales.
Retail sales saw a modest increase in July, but economists suggest that further interest rate cuts are needed to stimulate sustained activity.
According to Statistics Canada, retail sales rose by 0.9 per cent to $66.4 billion in July, driven largely by an uptick in new car sales.
The agency reported growth in seven of the nine subsectors it monitors, with motor vehicle and parts dealers experiencing a 2.2 per cent rise, including a 2.3 per cent increase in sales at new car dealerships.
“It’s rare to see a positive surprise from Canadian consumers these days, but the July retail sales report delivered,” noted Shelly Kaushik, an economist at BMO Capital Markets, in a message to investors.
The sales figures correspond to a period when consumers were anticipating, and later responding positively to, the Bank of Canada’s decision to reduce its key interest rate in July. The central bank lowered rates again in September, bringing it to 4.25 per cent.
Although the higher interest rate has been a burden for shoppers, especially for those making significant purchases or seeking mortgages, the recent rate cuts have offered some financial relief.
Core retail sales, which exclude gasoline stations, fuel vendors, and motor vehicle and parts dealers, saw a 0.6 per cent increase in July.
Sales at food and beverage stores rose, supported by a 1.2 per cent increase at supermarkets, a 2.1 per cent jump at specialty food retailers, and a 0.4 per cent gain at convenience stores and vending machine operators.
July also saw higher sales at health and personal care retailers.
In terms of volume, retail sales across the month rose by 1.0 per cent, according to Statistics Canada.
However, gasoline stations and fuel vendors experienced a 0.6 per cent decline in sales for the month, with sales volume in the subsector falling by 1.7 per cent.
Looking ahead, Statistics Canada’s preliminary estimate for August retail sales points to a 0.5 per cent increase, though the figure may be revised.
“As we’ve stressed many times before, spending growth is weak compared to the population surge,” Kaushik said. “Consumers will need to see more rate cuts filter through the economy for a more substantial recovery.”
TD Bank economist Maria Solovieva echoed concerns about the downward trend in retail spending.
“A strong start to the quarter is unlikely to significantly influence the likelihood of the Bank of Canada cutting rates by 50 basis points in October,” she wrote to investors.
