Rising gas prices hit consumer spending

Excluding the impact of steadily rising food and gas prices, Canadian retail sales fell in March in a trend economists say is likely to persist as higher prices for staples continue to eat into consumers' wallets.

Excluding the impact of steadily rising food and gas prices, Canadian retail sales fell in March in a trend economists say is likely to persist as higher prices for staples continue to eat into consumers’ wallets.

The value of retail sales in March was flat at $37.3 billion but after removing the effects of price changes, particularly higher food and gasoline prices, retail sales volume slipped 0.8%, according to a Statistics Canada report Friday.

“That marks four months of stagnant sales, suggesting that consumers are struggling with higher gasoline prices and food costs eating into fixed budgets,” CIBC economist Emanuella Enenajor said in a report.

Consumers appear to be reining in spending after a post-recession spree that saw some Canadians’ rack up high levels of debt–prompting warnings against spending beyond one’s means.

Meanwhile, rising food and gasoline prices are outpacing tepid income growth, which means consumers have to dedicate more of their incomes to those staples and reducing spending in other areas.

The monthly gain in prices rose by 0.3%–virtually all attributed to a 6.4% hike at the pump–following a 1.1% jump the previous month. Food purchased at stores rose 3.7% in April, the same annual increase as in March, while overall food prices rose at slightly reduced 3.3% rate.

That could mean a persistently tough environment for retailers, who are finding it difficult to pass along higher commodity prices. Retail sales make up about 40% of total consumer spending in Canada.

“While a late Easter and dreary weather may have had an impact on March sales, Canadian consumer spending is clearly losing some momentum as prices at the pump and grocery store move higher, while borrowing cools,” said Robert Kavcic at BMO Economics.

Gas prices have skyrocketed in recent weeks and remain at an elevated level even though the price of oil has backed off from their recent highs. It takes months for any sustained lower oil prices to work their way down to pump prices.

Higher prices contributed to a 0.8% rise in sales at general merchandise stores in March.

Sales at electronics and appliance stores were up 2.1%–increasing for a second consecutive month following three months of declines.

The higher gas prices don’t seem to be deterring consumers from spending on their vehicles.

After three consecutive monthly declines, sales at motor vehicle and parts dealers rose 0.3% in March. Sales increased 0.8% at new car dealers while the rest of the subsector showed declines.

However, weakness was broad-based, with seven of the major components reporting declines in March and four sectors posting gains. Furniture sales saw the biggest decline, followed by sporting goods, health and personal care.

The data confirms that real consumption growth slowed to just above 1% annualized in the first quarter, well below the 5% pace seen in the final three months of last year, a report from Capital Economics said.

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