Retail sales in Canada had gotten to its lowest point in a span of seven months in November due to lower gasoline prices and lower than expected sales generated from the car segment. Specifically, the sector suffered a 0.9 percent decline from what it posted in October, according to a report from Statistics Canada.
To compare, Bloomberg analysts estimated retail sales only dropped 0.6 percent.
The slump was driven primarily by 5 percent decline in sales at gasoline stations and 1.8 percent dip in sales of vehicles and car parts. These two factors had exceptionally affected the retail sector so much so that if these figures were removed from the calculations, Canadian retail sales have actually increased by 0.2 percent in the same period.
Aside from the significant effect of car sales and gas on retail, another key takeaway from the report was that people were spending less on furniture, home building materials, and garden equipment. This could be an indication that the impact of the country’s rising borrowing interests, which pushed home prices up, had spread through retail. Specifically, sales at furniture shops declined 0.4 percent while sales of home materials and garden equipment slumped by 0.3 percent.
For this article, we briefly track down the most recent developments in the gas and car department and touched on what could be the next activity with regard to interest rates.
Gas prices expected to jump for the rest of 2019
Canadians enjoyed the lowest gas prices in December last year which continued until January this year. Gas was at an average price of around $1.02 per liter on Jan. 2, the lowest rate is seen since July of 2017.
This “enjoyable” rate, however, will not last for the rest of the year, according to GasBuddy analyst Dan McTeague. He is, in fact, seeing “a wild ride at the pump” for 2019. By spring, Canadians could be paying the highest gas prices they saw since 2014.
For instance, the Canadian government will start to implement a carbon tax across provinces in its bid to combat the effect of climate change. Naturally, this tax would be passed on to consumers in the form of high gas prices or increased fare in public transportations.
McTeague further said that the unpredictability in gas prices will also be triggered by the similarly unpredictable movement of oil prices worldwide.
Most recently, analysts expect that the sanction imposed by U.S. President Donald Trump on Venezuela could mean that Canada will see a rise in demand for its oil exports.
Nicolas Maduro broke his country’s relationship with the U.S. this week after the White House said it recognized rival Juan Guaido as the legitimate president of Venezuela.
With this, the U.S. lost one of its biggest oil suppliers that it could eventually source its oil from Canada. The possibility could relieve Canada from the oversupply that dramatically pulled oil and gas prices down last year.
Decline in car sales could continue in 2019
Canadian automotive sales fell for the first time in more than 10 years, according to the Global Automakers of Canada or GAC. Specifically, there were only 1,984,992 units sold in 2018. December sales contributed to the slump with only 114,289 units sold for the month.
The country had also experienced a decline in passenger car sales and light truck sales by as much as 21.1 percent and 6.5 percent respectively, according to DesRosiers Automotive Consultants.
Now, Scotiabank has said that car sales in Canada will continue to suffer this year.
“We forecast Canadian auto sales to dip to 1.93 million units sold in 2019 amid a continuation of the Bank of Canada’s tightening cycle and muted job gains with the economy sitting near full employment,” Scotiabank said.
The multinational bank said the decline in sales in 2018 was propelled by sluggish economic growth, low employment rate, and rising interest rates – factors which continue to unfold into 2019.
Canada’s roaring borrowing rates
The Bank of Canada has yet to determine whether the country could achieve a steady state in terms of interest rates. He said the central bank needs to factor in the developments about the ongoing global trade tensions, the impact of low oil prices in the country, and the nation’s housing market before a steady interest rate could be declared.
At present, the central bank’s policy rate is at 1.75 percent. This could be increased between 2.5 percent and 3.5 percent but the steady state remains “an open question,” Bank of Canada Governor Stephen Poloz said.
What’s next?
While the report from Statistics Canada pointed to a weak gasoline and auto sales numbers as the major driver of lower retail sales, it is also important to note that as per the same report, 11 other major categories under retail have posted negative sales.
These 11 categories represent as much as 75 percent of the overall retail trade – an indication that there has been less consumer spending. It’s either people are no longer keen on buying or something more compelling has affected their buying power. Economists should, therefore, look more closely as to what was the greater force affecting the Canadians’ spending behavior.