Retail sales increase puts another Bank of Canada rate cut back on the table

Many believe the better-than-expected showing in March and the strength of the April estimate are due to pre-spending ahead of tariffs taking their toll. Photo by Peter J. Thompson/National Post/Postmedia files

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The increase in March was just shy of the estimate of 0.7 per cent, but was mostly due to a 4.8 per cent rise in auto sales, according to Statistics Canada data released on Friday.

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The agency also estimated that retail sales for April will grow 0.5 per cent month over month.

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“What was key was the woeful 0.7 per cent plunge in the ex-auto segment. That was the steepest slide since May of last year,” David Rosenberg, founder of Rosenberg Research & Associates Inc., said in a note.

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That segment, which excludes automobiles, was pulled down by a 6.5 per cent plunge in gasoline sales as prices and volumes fell.

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Excluding vehicle sales — which economists said rose due to buyers trying to get ahead of retaliatory auto tariffs — and gas sales, retail sales were up 0.2 per cent month over month.

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“All of a sudden, the Bank of Canada is back in play,” Rosenberg said, referring to policymakers’ next interest rate announcement on June 4.

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Markets reduced their bets on a Bank of Canada rate cut earlier this week after core inflation came in hotter than expected. Headline inflation slowed in April mainly due to a drop in gasoline prices after the consumer carbon tax was eliminated, but the central bank’s preferred measures of core inflation accelerated.

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Currently, markets predict there is less than a 30 per cent chance the central bank will cut rates next month.

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But Rosenberg said the retail data, along with other measures that came out this week, shows that “the hot (consumer price index) number — which was mostly due to food price increases — was actually more lukewarm than it seemed on the surface.”

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The other measures he is referring to include retail price deflation, which fell 0.1 per cent month over month, and “deflated” producer price data in April.

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Plummeting business and consumer sentiment had set the stage for retail sales to come in weaker, according to the most recent Bank of Canada surveys.

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But many still believe the better-than-expected showing in March and the strength of the April estimate are due to pre-spending ahead of tariffs taking their toll.

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“The strength in retail sales is likely the result of consumers bringing forward some of their purchases ahead of potentially higher prices due to the trade tensions,” Charles St-Arnaud, chief economist at credit union Alberta Central, said in a note.

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He said retail sales per person adjusted for inflation grew 0.3 per cent in March, while core sales were flat.

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St-Arnaud also said retail sales per person were weaker in provinces such as Ontario and British Columbia, where consumer debt and insolvencies are higher.