Data released on Friday showed retail sales in Canada dropped 0.2% in February, a better-than-expected number but excluding auto fell 0.7%, more than forecast. Analysts at CIBC consider that the sluggishness in ex-auto spending is a sign that higher interest rates are having an impact. They see the Bank of Canada on hold for the rest of the year. 

Key quotes: 

“The start of the year surge in retail spending appears to be gradually fading, with a modest 0.2% decline in February (consensus -0.7%) estimated to be followed by a sharper 1.4% drop in March.”

“While the advance estimate for March suggests a steep 1.4% drop, that was derived from responses covering only 28% of companies normally surveyed, and as such could be heavily revised.”

“Even though the economy as a whole has performed better than expected recently, the sluggishness in ex-auto retail spending volumes is a sign that higher interest rates are indeed having an impact on consumer spending decisions, despite the excess levels of savings held by households. This sluggishness in spending should help keep goods price inflation under control (assuming supply chain issues don’t worsen again), allowing the Bank of Canada to stay on hold for the remainder of this year before gradual cuts start early in 2024.”