Canadian retail sales unexpectedly strong in June, but July drop looms

By Julie Gordon

OTTAWA (Reuters) -Canadian retail sales rose 1.1% in June, easily beating forecasts, on pricier gasoline and higher sales at car dealerships, Statistics Canada data showed on Friday, but sales were seen falling in July.

Analysts surveyed by Reuters had expected retail sales to rise 0.3% in July. Statscan, in a preliminary estimate, said it sees July retail sales falling 0.2%.

Much of that July decline likely comes down to lower gasoline prices, but also signals rising consumer fatigue and a cooling of demand following a series of Bank of Canada interest rate hikes, economists said.

"Canadians have been feeling the pinch from both high inflation and rising interest rates," Royce Mendes, head of macro strategy at Desjardins Group, said in a note.

"So it should come as little surprise that retailers are beginning to see the pace of sales slow."

The Bank of Canada raised rates by a surprise 100 basis points in July. It is expected to hike its policy rate again by at least 50 basis points in September.

The latest TD Consumer Spending Tracker, separately released on Friday, also showed spending is leveling off.

"June’s spending held relatively flat and there are signs of a nascent downward trend in July. That could be an early sign of easing consumer demand as inflation chips away at purchasing power," TD economist Ksenia Bushmeneva said in the note.

She added the downward trend is more apparent when spending the data is adjusted for inflation.

The Canadian dollar was trading 0.3% lower at 1.2985 to the U.S. dollar, or 77.01 U.S. cents, as the greenback moved higher against a basket of major currencies.

The July flash estimate was calculated based on a weighted response rate of 36.5%. The average weighted response rate for the survey over the previous 12 months has been 91.3%.

(Reporting by Julie Gordon in OttawaAdditional reporting by Dale Smith in Ottawa and Fergal Smith in TorontoEditing by Paul Simao and Frances Kerry)