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Aug 23 - 10:55 AM

CIBC's Reaction: Caution Prevails in Canadian Retail Sector, Dims BoC's Rate Hike Prospects

By eFXdata  —  Aug 23 - 08:49 AM

Canadian retail sales have wrapped up Q2 with a timid performance, leading to questions about the sustainability of the Bank of Canada's (BoC) rate hike agenda. Let's delve into the key takeaways:

  1. Subdued Retail Activity:

    The Numbers: Retail sales rose by a marginal 0.1% in Q2, falling short of consensus expectations. Excluding auto sales, the numbers were even more lackluster, recording a 0.8% drop.

    Revisions Hurt: To make matters worse, previous month's ex-auto sales were revised downwards, from flat to a 0.3% decline.

  2. Volume Terms & Year-Over-Year Analysis:

    Disappointing Volumes: In volume terms, retail sales dipped by 0.2% in June.

    YoY Context: Even though there's a 0.6% increase in year-over-year terms, strong population growth over the past year makes the increase look less impressive on a per-capita basis.

  3. Bank of Canada's Dilemma:

    Q1's Silver Lining: BoC had resumed rate hikes buoyed by strong consumption figures in the first quarter.

    Q2's Reality Check: The likely dip in consumption over the second quarter could force a rethink on rate hikes. Although July's preliminary sales data indicate a 0.4% increase, this too might appear soft when assessed in volume terms.

Conclusion: The lackluster performance in retail sales, coupled with downward revisions, casts a cloud over the Bank of Canada's rate hike ambitions. With consumption showing signs of weakening, the central bank might have to reevaluate its policy course.

CIBC Research/Market Commentary


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