Energy shock clouds outlook even as consumers keep spending
Retail sales in Canada ticked higher again in February, with early estimates pointing to another gain in March, but economists said the upturn is unlikely to push the Bank of Canada off the sidelines as an energy shock and weak confidence weigh on the outlook.
Statistics Canada reported that retail sales rose 0.7% month over month in February, following an upwardly revised 1.2% increase in January.
In volume terms, activity increased a more modest 0.3%, and a flash estimate pointed to a further 0.6% gain in March.
“Retail spending grew 0.7% m/m in February, building off a solid, upwardly revised 1.2% m/m advance in January, slightly below our forecast and consensus expectations,” Tony Stillo, director of Canada economics at Oxford Economics, said.
“StatCan’s flash estimate suggests strong 0.6% m/m nominal sales growth in March but that partly reflects surging gasoline prices from the energy price shock. In real terms, March retail sales were likely flat, and may have edged down.”
CIBC economist Andrew Grantham struck a similar note, pointing to “a healthy gain in nominal terms” but cautioning that in volume terms “it appears that sales may have already stalled” as households confronted higher fuel costs.
If gasoline prices squeezed incomes enough to curb discretionary purchases, “that will lessen the likelihood that inflationary pressures will broaden across the economy and enable the Bank of Canada to keep interest rates on hold,” he said.
Stillo said the backdrop has been darkened by “the global energy price shock from the US/Israel‑Iran war and increased uncertainty” that would “add to trade war concerns and squeeze households this spring.”
“Households are likely to reduce gasoline consumption and may postpone some major purchases,” he said, “but we expect most will aim to maintain spending by reducing savings.”
Policy supports are expected to soften part of that blow. “The new federal grocery and essentials benefit and temporary suspension of the federal excise tax on fuel will help cushion the hit to real incomes and support spending in Q2,” Stillo said.
For mortgage professionals, the key question remains whether firmer spending would nudge the Bank of Canada toward renewed tightening.
With retail momentum increasingly driven by prices rather than volumes and an energy shock set to erode real incomes, brokers and lenders are likely to treat February’s upbeat headline as another sign of consumer resilience, not a reason to expect an imminent shift in the central bank’s wait‑and‑see stance.
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
