Canadian consumers are pulling back on spending as rising prices and high interest rates appear to be taking a toll on retail sales.

Retail sales slipped 0.2% to $66.3 billion in February amid a drop in spending at general merchandise stores and gasoline stations and fuel vendors, Statistics Canada said Friday.

The early estimate for March also points to an even steeper decline of 1.4%, though the agency cautioned the figure would be revised.

“We’re starting to see consumers tighten their belts,” retail analyst Bruce Winder said. “Canadian consumers are incredibly cautious right now.”

Economists have warned of a lag between rising prices and high interest rates and the affect on the economy. While the Bank of Canada held its key lending rate at 4.50% at its most recent rate decision, it is up from 0.25% at the start of 2022.

“It is clear that consumer spending behaviour has been impacted by the rapid rise in interest rates even as the economy as a whole has generally outperformed expectations,” Andrew Grantham, senior economist with CIBC Capital Markets, said in a client note.

Still, the pull back in consumer spending could help ease inflation even further, he said.

“This sluggishness in spending should help keep goods price inflation under control (assuming supply chain issues don’t worsen again), allowing the Bank of Canada to stay on hold for the remainder of this year before gradual cuts start early in 2024,” Grantham said.

The annual rate of inflation in Canada dropped to 4.3% in March, but grocery prices climbed 9.7% on a year-over-year basis, Statistics Canada said Tuesday.

For February, retail sales were down in four of the nine subsectors as sales at gasoline stations and fuel vendors fell 5.0% for the month and general merchandise retailers lost 1.6%.

Meanwhile, sales at motor vehicle and parts dealers rose 0.9 per cent in February.

Core retail sales — which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers — increased 0.1% helped by a 4.4% gain in sales at clothing, clothing accessories, shoes, jewelry, luggage and leather goods retailers.

“Consumers are picking are choosing where they cut spending,” Winder said. “More companies are quietly nudging workers back into the office, so that could be helping spending in some areas.”

In volume terms, a measure that adjusts for the impact of inflation, overall retail sales fell 0.7% in February.