Canada retail sales climb 0.5% as gasoline fuels April spending

OTTAWA -- Retail sales in Canada rose for a fourth consecutive month in April, led by increased trade at gasoline stations and fuel vendors, though the advance fell slightly short of economists' expectations and highlighted an uneven consumer recovery shaped by rising fuel costs.

Sales increased 0.5% from March to a seasonally adjusted 73.03 billion Canadian dollars (US$51.65 billion), Statistics Canada reported Friday. The reading was a tick below the agency's preliminary estimate of 0.6% and followed an upwardly revised 0.9% gain in March. On a year-over-year basis, retail sales were 3.7% higher, moderating from the 4.1% annual pace recorded in March.

"The headline number is respectable, but the composition matters," said Avery Chen, senior economist at BMO Capital Markets. "When gasoline stations are the primary driver, it raises the question of whether consumers are simply paying more at the pump rather than increasing their overall consumption."

Gasoline stations and fuel vendors posted the largest gains among retail categories, reflecting higher prices at the pump that boosted nominal receipts even if volumes remained subdued. The data agency's advance estimate for May pointed to a 1% increase in retail sales, though that figure was based on responses from 52.1% of surveyed retailers and is subject to revision when the full report is published next month.

The sustained rise in nominal retail spending provides some support for the Bank of Canada as it assesses the path of interest rates. The central bank held its benchmark rate at 4.25% at its June 3 meeting, maintaining a restrictive stance after cutting 75 basis points from the peak of 5.00% in 2024. Overnight index swaps currently price roughly 50 basis points of additional easing by year-end, implying approximately two quarter-point cuts, with the first move fully priced for the October meeting.

The April data also underscores a growing divergence between nominal and real retail activity. With gasoline prices accounting for an outsized share of the monthly increase, the volume of goods purchased may be expanding more slowly than the headline suggests. The last time fuel vendors drove a comparable share of retail gains was in the first quarter of 2025, when the consumer price index for energy was running above 8% year-over-year and the Bank of Canada was still holding rates at 4.50%.

For currency markets, the Canadian dollar showed limited reaction to the release, with USD/CAD trading near 1.4130 shortly after the data crossed, little changed on the session. The loonie has weakened roughly 4% against the greenback this year, pressured by the Bank of Canada's rate-cutting cycle relative to the Federal Reserve's prolonged hold at 5.25% to 5.50%. A sustained consumer spending slowdown could accelerate that divergence if it prompts the BoC to cut more aggressively than markets currently expect.

In bond markets, Canada's two-year yield edged down 2 basis points to 3.42% following the release, while the 10-year yield held steady at 3.58%. The modest flattening of the curve suggests traders saw the data as marginally supportive of the BoC's easing bias, though the miss versus the preliminary estimate prevented a more pronounced move.

Looking ahead, the May retail sales report — due for release July 24 — will be critical in determining whether the consumer spending trajectory is accelerating or plateauing. If the advance estimate of 1% growth holds, it would mark the strongest monthly gain since January and suggest the second quarter ended on firmer footing. A downward revision, however, would reinforce concerns that high fuel costs are crowding out discretionary spending and could add pressure on the central bank to accelerate its easing cycle.

The Bank of Canada's next policy decision on July 15 will incorporate the May retail data alongside the June CPI report, due July 16. Economists will be watching for any signs that consumption momentum is broad enough to keep core inflation from drifting below the central bank's 2% target, particularly as shelter costs continue to moderate.

This article is for informational purposes only and does not constitute investment advice.