(Adds details, economist comment, market reaction, byline)
By Leah Schnurr
OTTAWA, Nov 23 (Reuters) - Canadian retail sales rose far less than expected in September as higher gasoline prices were offset by a decline in purchases of vehicles and clothing, pointing to cooler economic growth and reinforcing expectations the central bank is on hold until next year.
The 0.1 percent increase reported by Statistics Canada on Thursday was short of economists’ forecasts for a gain of 0.9 percent, while volumes fared worse, declining by 0.6 percent. Retail sales rose 0.5 percent in the third quarter, slowing from the second quarter’s 1.4 percent gain.
“It was a pretty downbeat report on all fronts,” said Robert Both, macro strategist at TD Securities. “This should be pretty negative for the monthly GDP print next week.”
The Canadian dollar weakened against the greenback immediately following the report.
The figures underscored expectations economic growth will slow in the second half of the year after a strong performance in the first six months of 2017 that put Canada at the top of the Group of Seven pack.
The slower pace of growth, along with muted inflation and uncertain North American trade policy, is expected to keep the Bank of Canada on hold when it meets next month after raising interest rates twice earlier this year.
Traders are now pricing a 90 percent probability that the central bank will keep rates at 1 percent at its December meeting.
Gasoline sales climbed for the second straight month in September, rising 2.6 percent, as supply disruptions caused by Hurricane Harvey in the United States lifted prices at the pump.
But that was tempered by a 0.5 percent decline in sales of motor vehicles as Canadians bought fewer new and used cars, while sales of clothing and accessories dropped 2.8 percent.
Sales at stores associated with home purchases were one source of strength in September, with building material and garden equipment sales up 2.6 percent, while furniture purchases increased by 2.3 percent.
Combined with an unexpected drop in September wholesale trade earlier this week, the data point to “slim to no growth” for the month, said Nick Exarhos, economist at CIBC.
“The stalling in recent figures on the economy support our view that the Bank of Canada is likely on the sidelines until the spring of next year,” Exarhos wrote.
Additional reporting by Fergal Smith in Toronto; editing by Diane Craft