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:
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.
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.
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.