Retail sales contracted and the Bank of Canada is expected to put interest rate hikes on hold next week

　　Canadian (CAN) consumers are cutting back on spending, giving the Bank of Canada (BoC) a new reason to keep interest rates unchanged next week.

　　According to Statistics Canada's (CanStat) monthly Retail Sales Report (MRTS), retail sales fell 0.1 per cent in August from the previous month, the first contraction in four months. That was a sharp slowdown from the previous month, but better than the 0.3 per cent contraction economists had expected. The preliminary estimate showed zero growth in September.

　　The local head bank said the data meant the Bank of Canada would not raise interest rates next week.

　　Eric Lascelles, chief economist at Royal Bank of Canada, said: "Flat is weak. With inflation and population growth higher than normal, retail sales need to rise 0.4%, 0.5%, 0.6%. Because essentially, that means the average Canadian bought the same amount of stuff as the month before. The data proves that the Canadian consumer is feeling a little bit sick and not able to move the economy forward."

　　Shelly Kaushik, an economist at Bank of Montreal (BMO), said: "The weak sales suggest that consumers are losing confidence, leaving the overall economy to stall for the rest of the year. This weak report is one more reason to expect the Bank of Canada to keep its policy rate unchanged at its meeting next week."

　　Catherine Judge, an economist at Canadian Imperial Bank of Commerce, said: "This report is another signal that consumer spending continues to weaken, and the September estimate also points to a weak start to the fourth quarter." With a clearly negative domestic demand response to higher rates, the central bank may not need to raise rates further."