Retail sales increased in July, suggesting Canadians still had some dry powder to spend despite high inflation and interest rates, but that was mostly due to higher prices as volumes pulled back, and the early estimate for August shows consumers are hunkering down.

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Broadly in line with forecasts, retail sales in July increased 0.3 per cent to $66.1 billion, boosted by purchases at grocery stores and supermarkets, Statistics Canada said on Sept. 22, but volumes fell 0.2 per cent just as they did in June. Core retail sales, which exclude cars and gas, were up 1.3 per cent.

The advanced estimate for August indicates sales pulled back 0.3 per cent, the first full month Canadians experienced interest rates at five per cent since the central bank resumed hiking rates in June, Desjardins economist Tiago Figueiredo said in a note to clients.

“The flash estimate could represent some of the first signs that the central bank’s latest hikes are taking a significant bite out of consumer spending,” he said.

The small increase in sales in July are due to population growth and higher sticker prices, said Bank of Montreal senior economist Robert Kavcic.

Flash estimate could represent some of the first signs that the central bank’s latest hikes are taking a significant bite out of consumer spending

Tiago Figueiredo, economist, Desjardins

“High food and gas prices, along with the steady flow of upward mortgage renewals, figures to remain a headwind on discretionary consumer spending in Canada,” he said in a note. “Another sign of sluggish growth for the Canadian economy while the Bank of Canada, at the same time, grapples with above-target inflation.”

Statistics Canada also measured the impact of the port strikes in British Columbia this summer and found 17 per cent of retailers reported their business was affected by workers who walked off the job.

In dollar terms, motor and parts dealers were the hardest hit in July, it said. That’s one reason car and auto-parts dealers posted their first sales decline in four months, dropping 1.6 per cent, and sales at used-car dealers dropped more than three per cent.

Overall retail sales in Quebec and B.C. grew the most at one per cent and 1.4 per cent, respectively, while Ontario posted the largest decrease at 0.2 per cent, due to lower car and auto-part sales.

Consumers continue to increasingly use e-commerce, with online sales picking up 2.4 per cent in July to $4 billion, accounting for six per cent of total retail trade compared with 5.9 per cent in June.

• Email: bbharti@postmedia.com

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