Canadians are growing more cautious about spending as their mortgages come up for renewal at significantly higher interest rates. Retail sales fell by 0.1% in January, below the anticipated increase of 0.1%. Excluding automobiles, sales declined by 0.3%. The rapid increase in Canada’s population continues to make the numbers look better than the reality, with total sales now 2.2% below year-ago levels. CIBC also notes that warm early-year weather may have skewed the picture.
The market is pricing in a 49% chance of a cut in June, so it’s a close call.
Mortgage renewals are a major expense for many Canadians, and the higher rates will eat into their disposable income. This is likely to lead to a slowdown in consumer spending in the coming months.
Retail sales are a key indicator of economic activity, and the decline in January suggests that the economy may be slowing down. This is a concern, as Canada’s economy is heavily reliant on consumer spending.
The Bank of Canada is closely monitoring the situation and may cut interest rates in June in an effort to stimulate the economy. However, a rate cut is not guaranteed, and the market is pricing in only a 49% chance of one.
