June 22, 2017 / 12:45 PM / 2 months ago

Rise in Canadian retail sales bodes well for second quarter economic growth

3 Min Read

People walk out of the going-out-of-business sale at Target Canada in Toronto February 5, 2015. Target Corp is closing its stores in Canada after the insolvent retailer came to an agreement with its landlords to start liquidation.Mark Blinch

OTTAWA (Reuters) - Canadian retail sales rose in April on higher gasoline prices and increased demand for home appliances and garden supplies, Statistics Canada said on Thursday in a report that lent support to the Bank of Canada's recent hawkish monetary policy stance.

The value of retail sales rose 0.8 percent, exceeding forecasts for a 0.2 percent gain and providing a firm start to the second quarter. Stripping out the effects of price changes, April's sales volumes were less robust, rising just 0.3 percent.

Canada's economy is on track to grow at an annual rate of near 3 percent in the second quarter, said Brittany Baumann, macro strategist at TD Securities. The economy expanded at a 3.7 percent pace in the first three months of the year.

The report increases the odds the Bank of Canada will raise interest rates at its next meeting in July, though Friday's inflation report will be key, particularly in regards to the central bank's measures of core inflation, Baumann said.

"Further deceleration in core inflation is more likely to stay the bank's hand in July, while some stabilization or uptick, which cannot be excluded at this stage, will put further pressure on the Bank of Canada to act," she said.

Bank of Canada policymakers took a more hawkish turn last week, setting the stage for rate hikes. The central bank has held its policy rate at 0.50 percent since 2015 when it cut rates twice to offset the impact of cheaper oil, one of Canada's main exports.

The Canadian dollar gained against the greenback and was trading at C$1.3253 or 74.45 U.S. cents after Thursday's report. [CAD/]

Sales in the building material, garden equipment and supplies sector rose 3.5 percent, the biggest increase in nearly two years. Increased sales of home appliances and hardware have helped the sector rise for eight months in a row.

Canada's housing market has been robust, with sales and starts rising in the first months of 2017, though activity has cooled in Toronto since the provincial government imposed in late April a foreign buyers tax in Canada's largest city and surrounding areas as part of an effort to rein in the market.

Sales rose 2.1 percent at general merchandise stores, which include big-box and department stores. Sales at gasoline stations rose 1.7 percent, the seventh increase in nine months as Canadians paid higher prices at the pump.

Vehicle and parts dealer sales fell 1.0 percent following a solid increase in March as consumers bought fewer new cars. Excluding the auto sector, retail sales rose 1.5 percent.

Reporting by Leah Schnurr; Editing by Chizu Nomiyama and Paul Simao

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