Canada Retail Sales Up 1% in May as Gasoline Lifts Receipts

**Canadian retail sales rose 1% in May, driven largely by surging gasoline prices that masked underlying weakness in consumer spending.** The advance estimate from Statistics Canada follows a 0.5% increase in April, which came in slightly below economist expectations. The data points to a 1.9% expansion in the second quarter, marking an eighth consecutive quarterly gain, but the headline figure is heavily distorted by fuel costs.</p><p class="summary-lead">**Excluding gasoline, April retail sales were flat, and core retail sales—which strip out gas stations and car dealers—fell 0.7% for a second straight monthly decline.** Food and beverage retailers saw a 2% drop, while general merchandise retailers fell 1.7%. This suggests that higher prices at the pump are crowding out discretionary spending in other categories, even as consumers show pockets of resilience, such as a 1.7% jump in motor vehicle and parts dealer sales.</p><p class="summary-lead">**The divergence between nominal and volume terms underscores that inflation, not genuine demand, is propping up retail figures.** In volume terms, April sales were unchanged overall, and even gas station sales rose only 0.8% in volume despite a 5.1% nominal increase. The Bank of Canada will watch these trends closely, as weakening core retail activity could signal that higher interest rates are beginning to cool the economy, even as energy costs keep the top-line numbers elevated.</p><p class="summary-lead">**What to watch next:** Whether June retail data confirms a softening in consumer demand outside of energy, and how the Bank of Canada interprets this divergence in its next rate decision.