In a sign that consumer demand may be under pressure from high inflation and interest rates, a housing market downturn and weaker economic growth, retail spending retraced in July after three months of strong gains.
Dollar-volume retail spending fell 1.5 per cent with year-over-year growth of 4.2 per cent. The latter compared with 4.4 per cent in June. While provincial real spending figures are unavailable, national sales fell two per cent in volume terms, and a slip in B.C. is likely given that consumer prices rose 0.3 per cent in July. That said, spending levels have remained robust and at least some of this reflects a rotation to services spending.
Regionally, the Vancouver metro area led the decline with a 2.2 per cent monthly decline but exceeded the rest of the province with a 5.6 per cent year-over-year gain.
July’s largest drag on dollar-volume sales was driven by gasoline stations and a sharp drop off in gas prices. Monthly sales fell 6.6 per cent, with year-over-year growth falling from 44 per cent to 16 per cent this July owing in a drop in prices. Housing-related sales softened with a sharp deceleration at home furniture and furnishings (minus-3.4 per cent) store sales, and sales at electronic stores eased to a 6.3 per cent growth rate from 8.1 per cent in June and building material sales stores showed a 5.3 per cent drop. Consistent with a slowing in interest, sensitive sectors included a drop off in motor vehicle and parts retail sales, where sales fell 10 per cent year over year. In contrast, households are spending more at food and beverage stores reflecting an increase in prices.
Going forward, retail spending remains stable in dollar terms as consumers adapt to rising prices and greater economic uncertainty with full-year growth of three per cent, from 13 per cent in 2021.
B.C.’s consumer prices fell 0.4 per cent in August, curbing year-over-year inflation to 7.3 per cent, compared with eight per cent in July. While providing some relief to households, inflation pressures remained acute.
Gasoline was the main drag, with the price at the pump down 7.1 per cent, curbing year-over-year growth from 25 per cent in July to 17 per cent in August. Increased global supply and economic growth concerns likely contributed to the downward momentum. Broadly, energy prices eased. While commuters found some relief at the pump, prices for the most basic needs continued to soar. Food prices rose 0.5 per cent from July and 9.4 per cent from a year ago, led by store-bought foods (10.5 per cent).
Shelter prices were unchanged from July, contributing a slip in year-over-year growth to 7.7 per cent. Rent costs eased from July, and while ownership costs rose, 12-month growth decelerated to 7.8 per cent from 8.1 per cent. Lower home prices are dampening replacement costs. Other notable changes included declines in furniture and appliance prices, which could reflect improving supply chains, although with prices about 10 per cent higher than a year ago, challenges continue.
Surprisingly, clothing prices decelerated with a 1.8 per cent monthly decline and 3.7 per cent year-over-year drop. While tourism continues to improve, accommodation costs fell four per cent monthly. Year-over-year growth slowed to 24 per cent from 50 per cent in July. Broadly, goods prices decelerated to 7.1 per cent from 8.1 per cent in July, with services at 7.4 per cent.
While headline inflation has likely peaked, levels remain far too high provincially and nationally. The latter will continue to trigger further Bank of Canada interest rate hikes adding to financial challenges facing some households, albeit for future price stability. Elevated inflation pressures are likely to continue into 2023, which is particularly impactful for lower-income individuals given the sharp increase in food prices. •
Bryan Yu is chief economist at Central 1 Credit Union.
