Canadians reined in their spending in May as retail sales dropped 0.8%, weighed down by decreases at grocers and alcoholic beverage retailers, Statistics Canada reported on Friday.
Sales were lower in eight of the nine subsectors it tracks, the agency said, bringing overall retail sales down to $66.1 billion for the month.
Core retail sales, which exclude gas stations and motor vehicle and parts dealers, were down 1.4%, the report said.
The declines in both overall and core retail sales were worse than expectations and broadly offset gains seen in April, said CIBC senior economist Andrew Grantham in a note.
He added sluggish retail trends give the Bank of Canada one more reason to continue cutting its benchmark interest rate next week.
The central bank is expected to make an announcement on its overnight rate on July 24.
Royce Mendes, head of macro strategy at Desjardins, is forecasting the central bank will deliver another quarter-point cut this month, with households struggling under the weight of high borrowing costs.
The auto sector, which includes auto parts dealers, was the only one to see a modest increase in retail sales in May, driven by higher sales of new and used vehicles.
However, sales at dealerships have been volatile recently, following various shutdowns at assembly plants this year, said Olivia Cross, North America economist at Capital Economics.
“With higher interest rates clearly weighing on consumers’ finances and their appetite for big-ticket purchases, we do not expect those gains to continue,” she wrote in a note.
Sales at food and beverage retailers posted a 1.9% decrease, StatCan said.
Sales at building material and garden equipment and supplies dealers fell 2.7% and sales at general merchandise retailers declined 1%.
In volume terms, retail sales decreased 0.7% in May.
Statistics Canada estimated a decline of 0.3% for retail sales in June, but cautioned the figure would be revised.
Cross warned not to read too much into the preliminary June estimate as cyberattacks in North America disrupted motor vehicle sales at many dealerships — making the final outturn even weaker.
Although, she added, any lost ground in auto sales could be made up in July.