Data released on Friday showed retail sales in Canada dropped 0.1% in November, an improvement from the preliminary estimate of a 0.5% slide. Analysts at CIBC point out that some of the detail wasn't as encouraging, and the underlying trend still shows retail sales moving broadly sideways in volume terms. They expected the Bank of Canada to hike interest rates by 25 basis points next week.

Key quotes:

“On a more positive note, the advance estimate for December showed a gain in overall sales of 0.5%, which should look even better in volume terms given the sharp decline in gasoline prices that was seen during the month. Overall then, the two months together suggest a bumpy ride still for Canadian retailers, but it is at least a ride that is going broadly sideways still rather than downwards.”

“Retail sales in volume terms aren't rising, but they are not falling either, suggesting that accumulated savings during the pandemic may be protecting consumption to a certain extent from the impact of higher interest rates. However, with savings no longer as bloated as they once were, particularly in inflation-adjusted terms, and with rates having been raised further, household consumption could still see some modest declines in the first half of 2023. We continue to see one final 25bp hike from the Bank of Canada next week.”