Economists say the Iran conflict is squeezing household budgets faster than data shows
Statistics Canada reported Friday that retail sales rose 0.9 percent to $72.7bn in March, though nearly the entire gain reflected higher prices at the pump rather than stronger household demand.
Gasoline stations and fuel vendors drove the headline increase, posting a 12.4 percent gain after the US-Israel attack on Iran sent oil prices surging, according to Statistics Canada.
In volume terms, however, that subsector fell 1.9 percent — consumers were paying more for less gas.
Overall retail volumes fell 0.7 percent in the month.
Charles St-Arnaud, chief economist at Servus, told BNN Bloomberg the gain was driven by higher gasoline prices rather than "stronger underlying spending from households."
Core retail sales, which strip out fuel and auto dealers, edged down 0.1 percent, Statistics Canada reported.
Building material and garden equipment dealers led the decline, falling 2.9 percent, while general merchandise retailers slipped 0.5 percent.
Food and beverage retailers were the only core subsector to gain, rising 0.5 percent.
"A stagnant housing market continues to weigh on retail sales," CIBC senior economist Andrew Grantham said in a note cited by BNN Bloomberg.
Brent crude was trading around US$70 before the war began in late February, jumped to US$100 within a week and peaked at US$138 in April.
By May 22, Brent sat at US$103 and WTI at roughly US$96.
The war-driven price shock "is leaving a mark on Canadian consumers," BMO Capital Markets senior economist Shelly Kaushik wrote, noting consumers have otherwise held up against elevated uncertainty and population declines, BNN Bloomberg reported.
Consumer spending will remain under pressure until energy prices normalise, she added.
St-Arnaud told BNN Bloomberg that food prices faced their own structural pressures.
North America's cattle herd was at multi-decade lows, and high fertilizer, energy, and transportation costs would continue pushing prices higher.
"With those higher transportation costs, some of it will have to be passed through to consumers," he said.
Preliminary data suggested retail sales rose 0.6 percent in April, though Statistics Canada cautioned the figure, based on 52.1 percent of surveyed companies, would be revised.
Paired with inflation data, the reading pointed to essentially flat sales volumes, Capital Economics North American economist Bradley Saunders told BNN Bloomberg.
The Iran war "has really put a stop to" the spending pickup seen at the start of the year, he said.
Grantham said the spending stall would limit how far gas-price inflation could spread, giving the Bank of Canada room to hold rates.
St-Arnaud told BNN Bloomberg the Bank of Canada faces a tug-of-war between a weak domestic economy and energy-driven inflation, making a continued hold at 2.25 percent the most logical path.
A prolonged Strait of Hormuz disruption, he added, raises the probability of a hike.
"There's a lot of factors that are out of our control that will decide where monetary policy goes going forward," he said.
