Sales at retail stores are on the rise after two months of declines, suggesting Canadians’ spending power remains resilient despite tightening economic conditions.

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Rising retail sales strengthen case for Bank of Canada rate hike in July Back to video

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Retail sales climbed 0.5 per cent in May, according to Statistics Canada’s advance estimate released on June 21. In April, retail sales increased 1.1 per cent to $65.9 billion, surpassing the agency’s previous advance estimate of 0.2 per cent — the same figure analysts polled by Reuters expected — and reversing declines in February and March.

April’s growth was broad-based with sales climbing in eight of the nine sub-sectors that Statistics Canada tracks. Core retail sales, which exclude auto and gasoline sales, rose 1.5 per cent, which is higher than the headline number.

The numbers look strong, but they’re not entirely great news, Desjardins economist and senior director Randall Bartlett said.

“Total retail volumes edged higher by a much more modest 0.3 per cent, meaning April’s bumper advance was largely a price story,” he said in a note to clients.

Spending at general merchandise stores, such as department stores, supercentres and warehouse clubs, led the April increase and grew 3.3 per cent, while sales were up 1.5 per cent at grocery stores. The largest decrease in core retail sales came from furniture, home furnishings, electronics and appliance retailers, which collectively declined 1.6 per cent.

Auto and parts dealer sales also increased, after dropping in March, led by higher sales at used car dealers. Sales at gas stations ticked up 0.3 per cent, but sales by volume decreased 1.5 per cent.

“The Canadian consumer continues to prove its resilience,” Bank of Montreal economist Shelly Kaushik said in a note to clients. “Looking ahead, momentum in consumer spending is expected to slow in the second half of the year, as yet higher interest rates and still-elevated inflation continue to weigh on purchasing power.”

Royal Bank of Canada card-spending data showed retail spending (minus car purchases) rose in April after slowing for four consecutive months. But breaking the numbers down shows that spending on discretionary goods has dropped, while spending on discretionary services, particularly local entertainment, recreation and dining out, has remained steady.

The strength in retail data “is not what the Bank of Canada will be looking for as it hopes to slow domestic demand,” Bartlett said.

The central bank raised the policy rate at the beginning of the month to 4.75 per cent, ending its brief pause as it deemed monetary policy has not been restrictive enough given stronger-than-expected growth in gross domestic product and the labour market.

“Today’s retail print just works to reinforce our call that another 25-basis-point hike in July is likely,” Bartlett said.

• Email: bbharti@postmedia.com | Twitter: biancabharti