Canadian consumers extended a five-month spending streak in May, keeping the economy on track for solid second-quarter growth even as trade uncertainty and higher energy costs loom.
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Canada retail sales rise 1% in May as consumers fuel growth
Canadian retail sales rose for a fifth consecutive month in May, climbing 1% to CAD 73.71 billion, as higher gasoline prices and resilient household spending helped drive an economic rebound that the Bank of Canada expects to accelerate through mid-2026.
"Beyond the gas price increase, retail sales were solid in May, and a decent flash for June adds to the encouraging news," said Shelly Kaushik, economist at BMO Capital Markets.
Core retail sales, which strip out autos and gasoline, rose 0.9% in May, reversing a 0.7% decline in April. In volume terms, sales climbed a softer 0.3%, reflecting the impact of higher prices at the pump — gasoline station and fuel vendor receipts jumped 3.1% on a nominal basis but fell 2.7% in volume. Statistics Canada's flash estimate for June points to a further 0.4% increase, though that would mark a deceleration from May. The agency also revised April's reading down to 0.4% from 0.5%.
The data underscore the Bank of Canada's view that consumer spending will be the primary growth engine in 2026, offsetting weakness in housing, business investment and net trade. Governor Tiff Macklem held the policy rate at 2.25% in July, warning that the Middle East conflict and renewed US tariff threats — including a White House proposal for 50% levies on certain Canadian goods — pose significant risks to the outlook. Retail sales have risen 5.2% since a September low and are nearly 3% higher since the start of the year.
Energy Costs Mask Underlying Demand
The headline gain was heavily influenced by energy prices. Gasoline station sales rose 3.1% in nominal terms, but the volume measure fell 2.7%, indicating consumers are paying more for less fuel. That dynamic is intensifying: Brent crude has surged past USD 100 a barrel in July as Middle East hostilities escalated, a move that will likely push headline retail sales higher in coming months even as real consumption softens.
Statistics Canada reported that all nine tracked retail categories posted nominal gains in May. The sporting goods and miscellaneous sector rose 1.8%, while food and beverage stores contributed steady growth. On a 12-month basis, nominal retail sales were up 5.9%.
Policy Crossroads Ahead
The resilience of Canadian consumers gives the Bank of Canada room to maintain its wait-and-see posture, but the second half of the year presents fresh challenges. "Additional challenges — more tariffs, extreme weather, and the renewed energy price shock — await in the second half of the year," Kaushik said.
Canadian inflation has shown signs of easing — headline CPI slowed to 2.8% in June from 3.2% in May — but the recent surge in crude prices threatens to reverse that progress. The BoC's preferred core inflation measures averaged 2.1% in June, down from 2.27% in May, though Oxford Economics has warned that the lagged impact of higher oil and fertilizer prices could push food inflation to the mid-4% range by year-end.
The central bank's next rate decision is scheduled for September, with markets pricing a low probability of a move given the elevated uncertainty around both energy costs and US trade policy.
This article is for informational purposes only and does not constitute investment advice.
