Canadian consumers are cutting back on spending due to rising prices and high interest rates, which appear to be impacting retail sales.

Retail sales fell 0.2% to 66.3 billion in February, due to lower spending at general merchandise stores, gas stations and fuel dealers, Statistics said. Canada Friday.

In addition, the federal agency said its preliminary data for March suggested a decline of 1.4%, although it reiterated that these figures would be revised by their official release next month.

“We’re starting to see consumers tightening their belts,” said retail analyst Bruce Winder. “Canadian consumers are incredibly cautious right now. »

Economists have warned of the lag between rising prices and high interest rates and their impact on the economy. Although the Bank of Canada maintained its key interest rate at 4.50% in its last decision, this rate was 0.25% at the start of 2022.

“It is clear that consumer spending behavior has been affected by rapidly rising interest rates, even as the economy as a whole has generally exceeded expectations,” observed Andrew Grantham, senior economist at Markets of CIBC Capital, in a note for its clients.

“This slowdown in spending should help keep commodity price inflation under control [assuming supply chain issues don’t escalate again], allowing the Bank of Canada to sit still for the rest of the year before the phased reductions begin in early 2024,” Mr. Grantham argued.

Annual inflation in Canada fell to 4.3% in March, but grocery prices rose 9.7% year over year, Statistics Canada reported Tuesday.

For the month of February, retail sales fell in four of nine subsectors, with those of gas stations and fuel dealers falling 5.0% while those of general merchandise retailers fell 1.6%. .

Meanwhile, sales of motor vehicles and parts rose 0.9% in February.

Core retail sales, which exclude gas stations and motor vehicle dealers, rose 0.1%, supported by a 4.4% gain in sales of clothing, clothing accessories, footwear, jewellery, luggage and leather goods.

“Consumers choose the areas in which they reduce their spending,” Winder said. More and more companies are quietly encouraging their employees to return to the office, which could encourage spending in certain sectors. »

In volume terms, overall retail sales fell 0.7% in February.