Retail sales rose by a hefty 2.2% month-over-month (m/m) in May, ahead of Statistics Canada’s preliminary estimate for a 1.6% gain. Prices played an outsized role, as a result, the upturn was much softer in inflation-adjusted terms, with the monthly volume of sales up just 0.4% on the month.
Statistics Canada’s flash estimate for June points to a modest 0.3% increase.
Sales were up in every province, with notable gains in Quebec (+3.4%), Manitoba (+4.9%), Nova Scotia (+2.0%), and New Brunswick (+2.9%). Gains were more moderate in Ontario (+1.9%), Alberta (+1.9%), Saskatchewan (+0.9%), and British Columbia (+1.3%).
The headline in May was boosted by higher sales at gasoline stations and motor vehicle and parts dealers. Receipts at gasoline stations surged 9.2% m/m on the back of much higher gas prices. Adjusted for the price effect, gasoline sales actually fell by 2.2% in volume terms. Sales at motor vehicle and parts dealers rose by 3.3% on the month, increasing for the first time since January.
Core sales, which exclude autos and gasoline, rose for the fifth consecutive month, but increased more modestly than the headline (+0.6% m/m).
- Sales rose at food and beverage stores (+1.9), health & personal care stores (+1.6%), and clothing & accessories stores (+1.3%). Sales of clothes & accessories were up 81.3% from the year ago as consumers resumed pre-pandemic lifestyles and looked to upgrade their wardrobes. Sales were also higher at general merchandise stores (+1.4%), but fell at miscellaneous store retailers (-6.7%).
- Sales pulled back in the housing-related categories, such as building materials & garden equipment (-1.7%) and furniture & home furnishings (-0.4%). Sales of electronics & appliances were flat on the month.
- E-commerce sales eased by 2.9% in May, and were down 23.5% compared to a year-ago as consumers returned to in-person shopping.
Key Implications
Retail sales advanced at a strong pace in May. But all that glitters is not gold. Much of the gain in May is due to higher prices, particularly at the pump, and a recovery in auto sales following three months of decline. While overall sales increased in volume terms, at 0.4% m/m, the gain was relatively modest. As we dig deeper, a number of categories, such as gasoline, clothing and sporting goods, actually saw sales fall in inflation-adjusted terms.
With inflation running at a multi-decade high, higher prices have been giving a lift to nominal retail sales figures. As such, it’s becoming increasingly important to look at spending in real or inflation-adjusted terms. While in nominal terms retail sales are up 14% from a year ago, the volume of sales is up just 5.8%.
Oil and other commodity prices have eased in recent weeks, and the recent CPI data revealed that monthly increases in inflation are moderating. Still, inflation is expected to remain elevated on a year-over-year basis through 2022. This means that the Bank of Canada will continue taking policy rate higher when it meets again in September.
We expect that the overall consumer spending will hold up reasonably well through the summer months, as strong spending on experiences offsets reduced spending on physical goods. However, we expect that consumer spending will slow in late 2022 and into 2023, as higher interest rates alongside slowing labour and housing markets will lead consumers to tighten the purse strings.
