July 22, 2022 | 09:07
Canadian Retail Sales (May) — Price Hike in Aisle 1
Canadian retail sales rose a strong 2.2% in May, but there are signs that higher prices are biting into physical spending power. Indeed, gas station sales led the advance with a 9.2% month-to-month surge alongside higher pump prices. Grocery store sales also rose 1.9%, which again was likely price driven. Auto sales were also higher, up 3.3% in the month. Stripping out autos and gas, underlying core retail sales were up a much more modest 0.6%. Other areas were mixed, with some discretionary areas such as clothing (+1.3%) and general merchandise (+1.4%) solid, but others like building materials (-1.7%) and furniture (-0.4%) showing clear weakness alongside the downturn in housing. Regionally, all provinces saw gains in May.
In volume terms, sales were up a modest 0.4% in May, highlighting how rising prices are biting into volume growth—and this looks poised to get worse in the months ahead. StatCan notes that early estimates for June show a very small 0.3% increase in overall nominal sales (and that was in a month when gas prices were still surging). Indeed, with goods prices up 1.2% in the month, retail spending volumes look to be under downward pressure.
All told, May proved to be a mixed month for the Canadian economy, with retail and wholesale volumes up, but manufacturing and total hours worked down in the month. That, along with weakness in housing, leaves real GDP on track for a slight decline (reported next week following StatCan’s -0.2% initial estimate). But these months that just passed are not the real issue at the moment—rather, it’s how the economy holds up to much tighter monetary policy in the second half of the year.
The Bottom Line: There are some signs that inflation is slowing, if not biting into, retail spending volumes in Canada.