Canadian retail sales fell in May more than expected, based on data released on Friday, further strengthening expectations for the next interest rate cut as the market sees a rate cut of 25 basis points almost certain.
Retail sales, which include motor vehicles, clothing, furniture, food and beverages among others, fell 0.8% in May on a monthly basis, reversing a 0.6% increase in April, Statistics Canada reported.
This result was mainly due to a significant decline in sales at supermarkets and food retailers as consumers spent less amid persistent food inflation and high interest rates.
Analysts had predicted that sales would likely fall by 0.6% in May, and had estimated that sales excluding automotive and spare parts would fall by 0.5%.
"Overall, today's retail sales data may ensure a 25 basis point interest rate cut next week, with households clearly struggling under the burden of high borrowing costs," wrote Royce Mendes, chief macro strategist at Desjardins Group.
Sales at food and beverage retailers, which account for nearly one-fifth of total sales, fell 1.9% due to a 2.1% decline in purchases at supermarkets and food retailers, according to Statistics Canada.
The price of food purchased from stores rose 1.5% on an annual basis in May after a 1.4% increase in April. This is the first jump since June 2023, the statistics agency said last month.
June's retail sales figures, which polled only half of the respondents for preliminary estimates, showed that sales may have fallen by 0.3%, based on preliminary estimates by Statistics Canada.
The Bank of Canada cut its key interest rate by 25 basis points to 4.75% last month after inflation continued to remain below 3%, close to the upper end of its 1-3% target range. It aims to keep inflation at the midpoint of this range.
Financial markets expect a more than 90% chance that there will be a rate cut at the announcement of the Bank of Canada's monetary policy decision on July 24.
The Canadian dollar continued to weaken after retail sales data with the loonie shedding 0.26% to 1.3740 against the US dollar., or 72.78 US cents.
