TORONTO — Canadian retail sales fell unexpectedly in January, thanks primarily to a drop in new car sales, leading economists to suggest that weak consumer spending and low inflation will reassure the Bank of Canada to take its time raising interest rates.
Retail sales fell for the second month in a row to 0.3 per cent or $37.1 billion in January, suggest figures released by Statistics Canada — much lower than economist expectations.
The automotive industry had the greatest impact on overall numbers, with car sales dropping 1.7 per cent for the second consecutive month after seven months of gains. As fuel pump prices rose, consumers spent less at gas stations, with sales falling 1.4 per cent during the month, the first decline since June of last year.
Excluding the auto industry, sales were flat. Seven out of 11 sectors reported they sold less, but the food, building supply, sporting goods and department stores reported increases.
Slumping spending in Quebec also helped to pull down the national numbers, as sales in the province fell for the first time since June 2010 on the heels of a one percentage point sales tax increase in January.
Ontario and Alberta saw 0.5 per cent drops and while British Columbia saw a decrease of 0.4 per cent. Sales in all other provinces and territories gained, with Saskatchewan and New Brunswick leading the way and offsetting their lower sales in December.
Economists said the lower consumer spending together with the weaker core inflation rate of 0.9 per cent give the Bank of Canada time to put off rate hikes.
BMO Capital Markets economist Benjamin Reitzes wrote that although January retail sales suggest consumer spending appears to be receding, higher consumer confidence in February and job growth could lead to a rebound.
He said the economy is on track to show about four per cent annualized growth in the first quarter, above the Bank of Canada’s expectations of 2.5 per cent.
“With the output gap likely closing faster than the Bank of Canada is anticipating, we remain comfortable with our call for the Bank to start hiking rates in July,” he said.
Statistics Canada also released its leading indicators Tuesday, which are used to predict the future of economic activity in certain industries. The agency said a turnaround in manufacturing helped pull up an overall increase in its index.
The composite leading index rose 0.8 per cent in February, leading to the largest gain since May 2010.
Statistics Canada reports the increase was broadly-based, with nine out of 10 industries posting gains in February compared with five in December.