Canada: Retail Sales Showed Surprising Strength To End 2022

Retail sales fell 0.1% in November, in line with our call but above consensus expectations. The decline was entirely due to a contraction in volumes, with retail prices inching higher in the month. At the same time, core retail sales – purchases excluding gas stations and motor vehicle and parts dealers – posted a much deeper 1.1% plunge in November. With about one third of Statistics Canada’s survey responses received so far, the flash estimate for December is for a 0.5% advance.

Incorporating today’s retail sales data into our tracking for Q4 real GDP growth, we continue to anticipate an advance of 1.3% (q/q, saar) in the quarter. This remains well above the Bank of Canada’s forecast of 0.5% in its October 2022 Monetary Policy Report (MPR). Taken together with ongoing labour market strength, still elevated inflation and wage growth, and record high near-term consumer inflation expectations, today’s print did nothing to move us off of our view that the Bank of Canada will hike the policy rate by another 25 basis points next week.