(Adds market reaction, analyst comment)
By David Ljunggren
OTTAWA, Oct 22 (Reuters) - Canadian retail sales dropped unexpectedly in August as consumers pulled back for the second straight month, heightening uncertainty about broader economic growth and weighing on the Canadian dollar.
Retail sales dropped 0.3 percent in August, pulled down by lower gasoline prices and weaker sales of new cars, food, and housing-related items, Statistics Canada said on Wednesday. Analysts forecast sales would be unchanged from July.
August’s decline marked the second consecutive month-on-month fall after six months of gains and was the largest drop since the 1.1 percent decrease in December 2013.
“Canadian consumers are taking a bit of a breather after going on a shopping spree in Q2,” Benjamin Reitzes, senior economist at BMO Capital Markets, said in a research note.
“But before becoming too downbeat, retail volumes are still expected to see a decent gain for the quarter despite the softness in July and August.”
The Canadian dollar weakened to a session low against the U.S. dollar after the retail data and a report showing U.S. consumer prices rose marginally.
The loonie dipped to C$1.1279 against the greenback, or 88.66 U.S. cents, weaker than Tuesday’s close of C$1.1228, or 89.06 U.S. cents.
Much of the decline in sales was chalked up to a drop in prices, particularly for gasoline, and economists noted that volumes fell a smaller 0.1 percent in the month, setting the stage for an annualized gain above 2 percent in the third-quarter, down from the second quarter’s 7 percent surge.
Economists said the August weakness was not enough to change their forecasts for third-quarter economic growth yet, but warned the Bank of Canada was likely to remain reluctant to raise interest rates, given economic concerns at home and abroad.
“August real GDP is likely to remain flat and suggests that the 2.0 percent to 2.5 percent range for Q3 remains intact, which is in line with the Bank of Canada’s 2.3 percent from the July Monetary Policy Report,” Mazen Issa, senior Canada macro strategist, said in a research note.
“Though we will receive an updated forecast from the Bank later this morning, we expect to see the Bank focus on soft growth and heightened uncertainty over the global economy as justification to remain cautious.”
The central bank is due to release its latest economic forecasts at 10 a.m. EDT (1400 GMT) on Wednesday.
Sales were down in seven of the 11 sub-sectors, representing 76 percent of retail trade. Sales at gasoline stations dropped 2.1 percent, mainly reflecting lower prices at the pump.
Sales at motor vehicle and parts dealers declined 0.4 percent, dragged lower by a 0.6 percent drop in sales at new car dealers, while food and beverage stores decreased 0.4 percent. (Additional reporting by Andrea Hopkins in Toronto; Editing by Paul Simao and Jeffrey Benkoe)