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OTTAWA (Reuters) - Soaring gasoline prices pushed up retail sales by 0.4 percent in May from April, but the gain was weaker than expected, suggesting consumers were scaling back purchases amid a slowing economy.
Statistics Canada said on Tuesday that sales inched up just 0.1 percent if price changes, including a 9 percent jump in gasoline, were stripped out. Excluding new cars and used vehicles and parts, sales rose 0.4 percent.
"The so-so May gain is perfectly consistent with a consumer that is slowly pulling in their horns, but not exactly in full-scale retreat," said Doug Porter, deputy chief economist at BMO Capital Markets.
Analysts had expected total sales to grow 0.6 percent in the month, in line with the April increase, and sales ex-autos to rise 0.8 percent. Statscan said year-over-year sales grew 2.6 percent in May, down from 4.2 percent in April.
The Canadian dollar fell against the U.S. dollar immediately after the data, extending the losses in mid-morning trade. At 10:20 a.m. (1420 GMT), the currency was at C$1.0070 to the U.S. unit, or 99.28 U.S. cents, down from C$1.0014 to the U.S. dollar, or 99.86 U.S. cents, at Monday's close.
Economists still expect annual retail sales growth of over 2 percent in the second quarter.
"That is not nearly as robust as in the last couple of quarters, but given the slowly mounting headwinds against the Canadian consumer, some degree of retrenchment is to be expected," said Charmaine Buskas, senior economics strategist at TD Securities.
The Bank of Canada said last week consumer spending would be a factor driving economic growth this year. It expected spending to rise 2.1 percent in 2008, down slightly from 2.5 percent in 2007.
Final domestic demand, which also includes business investment, government spending and housing, was expected to climb 3.4 percent, offsetting the drag from net exports.
The bank expects the economy to grow 0.8 percent in the second quarter after a surprise contraction in the first quarter.
In May, the automotive sector posted the biggest spike in retail sales, thanks to an 8.8 percent surge in gasoline prices which caused gas stations to ring in 2.4 percent more than in the previous month.
Building and outdoor home-supplies stores saw the second-biggest gain, of 0.7 percent. The sharpest drop came in clothing and accessories stores, where sales slipped 0.7 percent.
Reporting by Louise Egan; Editing by Bernadette Baum