CDN Retail Spending Remains Strong
Consumer spending in Canada has remained strong in February, despite the central bank’s aggressive increases in borrowing costs. According to data released by Royal Bank of Canada, cardholder spending at the beginning of this month was up by about a third from pre-pandemic levels. This indicates that consumption “has yet to show signs of slowing”, said Carrie Freestone, a notable economist. The average daily number of restaurant transactions was slightly higher in January, compared with pre-Covid levels, and jewelry sales in advance of Valentine’s Day were similar to last year’s levels.
Despite higher debt servicing costs and lower real wages, discretionary spending has not slowed down. However, these factors are expected to eat into household purchasing power. The Bank of Canada’s recent interest rate hikes are a response to the rise in inflationary pressures, which has led to concerns that Canada’s economy may be running hotter than expected. The central bank’s forecast is that growth will stall in the first three quarters of this year, helping to reduce inflationary pressures. Governor Tiff Macklem declared a conditional pause last month, saying policymakers would move to the sidelines and assess the impact of their hikes.
The Canadian Imperial Bank of Commerce revised its growth forecasts upward, removing projections for a technical recession this year. This is due to “more elbow room for non-inflationary growth” than previously estimated. However, a slowdown in consumer spending is still expected by most economists this year, dragging growth to a halt. (expo.aspe.org) The majority of Canadians recently polled by Nanos Research Group say they’ll be squeezed if rates stay at the current 15-year high.
Despite concerns about inflation and the economy, consumer spending in Canada remains robust. This may be due to factors such as the strong employment growth, which is also raising questions about when the Bank of Canada’s forceful interest rate hikes will start to crimp growth. Additionally, the recent rise in consumer spending could be attributed to pent-up demand following the Covid-19 pandemic, as Canadians resume their pre-pandemic spending habits.
Finally, although concerns about inflation and the economy persist, consumer spending in Canada remains strong. The Bank of Canada’s recent interest rate hikes may slow down growth in the coming months, but for now, Canadians appear to be continuing their pre-pandemic spending habits. It remains to be seen how long this trend will continue and whether the expected slowdown in consumer spending will materialize.
