MNI:Canada July Retails Dip More Than Forecast 2.5%, Aug +0.4%

Canadian July retail sales fell 2.5% in a broad-based decline led by lower gasoline prices while an August flash estimate showed a 0.4% increase, figures that do little to resolve debate about whether the economy is heading for a hard landing.

Excluding gasoline and automobiles, sales also declined but by a much smaller 0.9% in July. Purchases declined across 95% of the retail industry. Clothing sales fell 3.3% and there was a 14% tumble at gas stations as prices dropped.

The decline in headline sales was the first in seven months, the steepest since April 2021, and larger than the economist consensus for a 2% fall. Making the figures harder to parse was another decline in sales at auto dealers still struggling to bring in new product amid the global microchip shortage. Statistics Canada on Friday also published a flash estimate of August manufacturing sales showing a 1.8% decrease, though led by chemicals, metals and energy.

Bank of Canada officials have said the economy is overheated and they must slow demand to bring it back into balance with supply, suggesting short-term weakness will be welcomed rather than a sudden trigger to halt rate hikes. Consumers are still sitting on a cash pile from Covid relief checks, unemployment is around record lows and policymakers are worried about price expectations taking off.

Economists saw the BOC hiking another 50bps next month after the Sept. 7 move of 75bps and comments this week about an ongoing battle to bring inflation back to the 2% target from its recent surge to four-decade highs around 8%.