Rising gas prices threaten to erode consumer momentum despite solid first‑quarter outlook
Canadians kicked off 2026 with a solid rebound in spending, but a looming surge in gasoline prices threatens to test how long that strength can last.
Statistics Canada revealed retail sales rose 1.1 percent to $70.7bn in January, with volumes up 1.0 percent.
Sales increased in six of nine subsectors, led by motor vehicle and parts dealers, which posted a 2.0 percent gain after a 1.6 percent drop in December.
Statistics Canada said new car dealers drove the subsector higher with a 2.5 percent increase, while other motor vehicle dealers climbed 5.6 percent and used car dealers fell 3.0 percent.
Financial Post reported that January’s 1.1 percent increase and an expected gain of about one percent in February suggest retail sales volumes in the first quarter of 2026 could log their strongest quarterly advance since the fourth quarter of 2024, CIBC senior economist Andrew Grantham said.
BNN Bloomberg reported that Grantham described it as “a solid start to the year for retail sales” and linked the improvement to last year’s interest rate cuts and a slight reduction in unemployment since mid-2025.
Core retail sales – excluding gasoline stations and fuel vendors and motor vehicle and parts dealers – increased 0.9 percent in January after a 0.4 percent decline in December.
The agency reported that general merchandise retailers led the advance, with sales up 3.0 percent and marking a fourth straight monthly gain.
Sales at sporting goods, hobby, musical instrument, book, and miscellaneous retailers rose 2.6 percent and recorded a second consecutive monthly increase.
On the downside, food and beverage retailers posted the largest decline in core sales, down 0.6 percent in January.
The agency said supermarkets and other grocery retailers (except convenience retailers) saw sales fall 0.7 percent after a 0.1 percent increase in December.
Energy remains a key swing factor.
Statistics Canada reported that sales at gasoline stations and fuel vendors fell 0.4 percent in January in both nominal and volume terms after two monthly gains.
As per Financial Post, Bank of Montreal senior economist Shelly Kaushik warned of “mounting headwinds” for consumers from higher energy prices amid the Iran war, saying those pressures will likely show up in March retail data.
Grantham expects the “recent jump in gasoline prices” to boost headline nominal sales but squeeze disposable income, restricting purchases of other products and weighing on real volumes.
Regionally, Statistics Canada said retail sales increased in every province in January.
Alberta posted the largest dollar gain, with sales up 3.5 percent, led by motor vehicle and parts dealers.
In Ontario, retail sales rose 0.9 percent on higher motor vehicle and parts sales, while the Toronto census metropolitan area (CMA) saw a 0.6 percent increase.
Quebec recorded a 0.6 percent rise in retail sales, and the Montréal CMA advanced 1.7 percent.
Online channels continued to grow modestly.
Statistics Canada said seasonally adjusted retail e-commerce sales rose 1.5 percent to $4.4bn in January, accounting for 6.2 percent of total retail trade.
Looking ahead, Statistics Canada estimated that retail sales rose 0.9 percent in February, but noted the number is preliminary because it relies on responses from only 53.4 percent of surveyed companies, well below the 87.3 percent final response rate averaged over the past year.
BNN Bloomberg reported that Capital Economics economist Bradley Saunders said the advance estimate is consistent with improving consumer confidence and implies household spending will bolster first-quarter GDP growth.
He warned that gas prices “headed for $2 a litre” risk crushing real consumption in the second quarter.
Behind the spending data, BNN Bloomberg reported that TD economist Maria Solovieva sees “momentum in services spending” supported by higher‑income households with stronger financial buffers and keeps TD’s forecast for first‑quarter consumption growth at 1.1 percent.
Financial Post reported that Oxford Economics’ Michael Davenport expects households to temporarily reduce savings to maintain spending and pointed to “the new federal grocery and essentials benefit” set to reach households’ accounts in the second quarter, helping offset the hit to real incomes.
The inflation backdrop remains relatively benign for now.
Financial Post reported that the annual inflation rate slowed to 1.8 percent in February from 2.3 percent in January, before the latest jump in gasoline prices.
David Rosenberg of Rosenberg Research said the tame trend in “pre-conflict” retail prices and moderate consumer price index readings should give the Bank of Canada room to either keep a rate cut on the table or hold off on more hikes, even if the March gas shock dampens spending.
