Rising fuel costs are weighing on Canadian household spending, with higher gasoline prices eroding real consumption through the spring, said CIBC Economics after Friday's retail sales data.
April retail sales rose 0.5% month over month, slightly below expectations of a 0.6% month-over-month increase, but the gain was largely price-driven, wrote the bank in a note.
Excluding autos and gasoline, core sales fell 0.7% month over month, while overall volumes were flat, indicating weaker underlying momentum, pointed out Andrew Grantham at CIBC.
Gains were concentrated in fuel stations, autos, and building materials, while food and beverage, general merchandise, and sporting goods saw declines.
The advance estimate for May points to a further 1.0% month over month rise in nominal sales, though higher gasoline prices again suggest softer real volumes, cautioned the bank.
Overall, consumer spending appears to have stalled in Q2 after a strong start to the year, with elevated pump prices squeezing discretionary demand, according to CIBC.
Still, the recent pullback in fuel prices and additional government support for households are likely to provide a cushion for spending later in the year, wrote Grantham.