Stronger spending and rising confidence could keep mortgage rates higher for longer
Canadian retail sales looked set to reopen the taps at the start of the year, complicating the Bank of Canada’s path to rate cuts and extending uncertainty for mortgage borrowers.
Statistics Canada reported that retail sales fell 0.4% in December to $70 billion, led by a 1.6% monthly drop at motor vehicle and parts dealers, while volumes were flat.
Retail spending barely grew in the fourth quarter, edging up just 0.1%, yet an early estimate pointed to a 1.5% rebound in January.
Retail sales excluding autos still managed a 0.1% rise in December, defying economists’ expectations for a 0.1% decline.
Flash estimate points to stronger January spending
BMO senior economist Shelly Kaushik called December’s numbers “a mixed bag.”
“The declines were concentrated in limited sectors and volumes were unchanged,” Kaushik wrote in a note, adding that “a solid flash estimate points to a rebound to start the new year. Ultimately, consumer spending is holding in despite ongoing economic uncertainty,” she said.
Those dynamics mattered for mortgage professionals because retail sales account for roughly 40% of consumer spending and act as an early signal for GDP, giving the central bank another reason to stay patient on easing.
Core retail sales – excluding gasoline stations, fuel vendors and motor vehicle and parts dealers – fell 0.3% in December, underlining the uneven nature of the slowdown.
Confidence and shelter costs eased pressure on households
Despite tariff‑related uncertainty, retail sales for 2025 as a whole rose 4%, up from 1.6% the year before, with gains in eight of nine subsectors and a 2.3% increase in volume terms.
Consumer sentiment also appeared to turn a corner: the Bloomberg Nanos Canadian Confidence Index climbed to 53.15 in mid‑February, the strongest reading since late 2024, suggesting households felt incrementally better about their finances and the broader economy.
At the same time, shelter price inflation eased to 1.7% in January, falling below 2% for the first time in nearly five years as rents and mortgage interest costs moderated alongside slower population growth and a Bank of Canada policy rate that held at 2.25%.
Rate‑cut timing pushed further out
CIBC senior economist Andrew Grantham said the retail figures showed consumer spending on goods likely dragged on fourth‑quarter GDP, but November’s gains and January’s flash estimate pointed to a possible pickup in spending.
“If that is the case, it justifies the current on‑hold stance from the Bank of Canada, although we will need a few more months of data to confirm if this upwards trend will hold,” he said.
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