Energy prices have fallen sharply in June and could stay lower if the Middle East peace deal holds, potentially supporting a stronger rebound in Canadian consumer spending in the second half of the year, said Bank of Montreal Capital Markets Economics.
"The good news is that energy prices have pulled back sharply in June, and could continue to normalize," the bank wrote in a note published on Monday.
Canada's retail sales data for April pointed to elevated energy prices as a factor squeezing household income, prompting reduced spending on non-essential items, Senior Economist Shelly Kaushik said in the note.
Canadian retail sales rose a "sizeable" 0.5% month over month in April, but the gain was largely driven by increased spending at gasoline stations as households felt the effects of rising fuel prices, Kaushik said.
Once gasoline and the typically volatile auto category are removed, core sales have contracted for two consecutive months, highlighting persistent weakness in consumer spending, according to BMO.