Canada December retail sales up 2.5%, beating market expectations

By Promit Mukherjee

OTTAWA (Reuters) - Canada's retail sales in December grew by a robust 2.5% on a monthly basis, beating analysts' expectations, as a sales tax holiday bumped up spending on food and beverages and people also bought cars and vehicle parts, data showed on Friday.

Retail sales in December are usually higher due to the holiday season. Economists said the government's sales tax break, which kicked off in mid-December and ended February 15, also boosted revenues.

Analysts polled by Reuters had forecast retail sales would rise by 1.6% on a month-on-month basis and by 1.8% excluding automotive and parts sales.

Retail sales jumped by 2.5% even after sales of automotive parts and at dealerships were excluded, Statistics Canada said.

Retail sales are considered an early indicator of gross domestic product growth and contribute almost 40% to total consumer spending, which was primarily responsible for keeping Canada's economy growing in the third quarter.

The Bank of Canada has cut its key policy rate more aggressively than other major central banks. Since June, it has slashed rates by a cumulative 200 basis points to 3% to boost the economy as inflation eased consistently.

"Even if the momentum (of retail sales) fades into the new year, these figures add to the argument for the Bank of Canada to pause at next month's meeting," Shelly Kaushik, senior economist at BMO Capital Markets, wrote in a note.

Currency swap markets now see a more than 68% chance of no rate cut on March 12, although economists have said expectations for the trajectory of interest rates could change if U.S. President Donald Trump slaps a 25% tariff on Canadian imports in March.

January's retail numbers, collected from a survey of half of the respondents normally polled for monthly data, showed that sales likely dropped by 0.4%, a flash estimate by Statistics Canada said.

December's growth in sales, with revenues picking up across all nine subsectors, came on the back of flat sales in November. In volume terms, sales increased 2.5% in December.

Canada's fourth quarter GDP numbers will be published on February 28 and expectations are that the economy grew by an annualized 1.7%.

Retail sales were up 2.4% in the fourth quarter of 2024, marking a second consecutive quarterly increase, the statistics agency said.

Sales at food and beverage retailers, the second biggest contributor to the sales figure with a fifth of the share, increased by 3.5%. This sector was also the biggest beneficiary of the sales tax holiday.

Sales at motor vehicle and parts dealers, the biggest contributor to retail sales, grew by 1.9%. Total retail sales clocked in at C$69.59 billion ($49.05 billion).

($1 = 1.4189 Canadian dollars)

(Reporting by Promit Mukherjee, editing by Deepa Babington and Nia Williams)