The loss of momentum in consumption reinforced market expectations that the Bank of Canada will hold interest rates steady
Canadian (CAN) consumer spending has weakened, which could prompt the Bank of Canada (BoC) to be patient in further policy tightening.
The Monthly Retail Sales Report (MRTS) released by Statistics Canada (CanStat) showed that retail sales increased 0.1 per cent month-on-month in June, slowing 0.1 percentage point from May. In June, retail sales fell 0.2 percent month-on-month, while core retail sales fell 0.8 percent month-on-month. However, preliminary data suggest growth will accelerate to 0.4 percent in July, the highest level since April.
The yield on the 2-year Canadian government bond widened to 13 basis points lower at 4.708 per cent after the data.
Jay Money, an analyst at Monex Canada, said: "Consumer spending in Canada is much weaker than it looks on the surface. Rising prices have driven up consumer spending. But excluding autos and gasoline, the real picture for retail spending is much weaker. More detailed data suggests that this weakness is widespread."
Catherine Judge, an economist at Canadian Imperial Bank of Commerce (CIBC), said: "Strong consumption in the first quarter justified the Bank of Canada to resume raising interest rates, but consumer spending fell back in the spring. In the second quarter, consumption of goods appears to have shifted from being a boost to a drag on growth."
Maria Solovieva, an economist at TD Bank, said: "The cumulative impact of 475 basis points on rate hikes is only beginning to have a real impact on household budgets. As more mortgages roll over at higher rates, homeowners will devote more of their income to debt service. That means retail sales could be the next rollover."
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