Retail sales show that lower interest rates are working to boost consumer spending – CIBC

Canadian retail sales painting a mixed picture in today’s report with November disappointing but the advance December numbers showing a strong climb.

After a flat reading in November, the advanced December reading was up 1.6%.

“That still suggests a healthy pace of spending during the holiday
period. Consumer spending has generally improved as interest rates have come down, and any threat to goods
inflation remains minimal given robust inventory levels,” writes CIBC.

Looking at November core sales, they highlight a 1.0% decline that would look even worse in per-capita terms. They say it represents rising unemployment and worries about mortgage renewals.

Overall though, they see the pickup in December as material, particularly since it’s such a critical month for retail sales.

“Real retail spending in the fourth quarter will likely come in between 4.5-
5.0% annualized,” they write.

For the Bank of Canada, they expect ongoing rate cuts from the current 2.32% level, starting next week:

Looking at the two-month change in spending implies that lower interest rates are working to
boost consumer spending, but ample lost ground remains to made up. Further interest rate reductions are clearly needed,
with inflation below target, and downside risks from the threat of tariffs on Canadian exports to the US. We continue to
look for the overnight rate to get to 2.25% in Q2.

USD/CAD is flat on the day today at 0.6273.

This article was written by Adam Button at www.forexlive.com.