Canadian retail sales beat expectations in November, but advance data pointing to a pullback in December suggests consumers remain under pressure. The mixed signals arrive just ahead of the Bank of Canada’s next interest rate decision, as policymakers balance sticky inflation against signs of slowing growth.
BNN Bloomberg spoke with Earl Davis, head of fixed income and money markets at BMO Global Asset Management, about how the central bank is weighing inflation, employment and growth, and why rate cuts may still come later this year despite near-term resilience in consumer spending.
Key Takeaways
- November retail sales exceeded expectations, but underlying data suggests the strength was partly driven by one-off factors and not broad consumer momentum.
- Advance estimates point to a December decline, reinforcing concerns that Canadian consumers remain cautious amid economic uncertainty.
- Inflation and employment remain the Bank of Canada’s top policy priorities, both of which currently argue for holding rates steady.
- Growth remains positive for now, limiting the need for aggressive stimulus despite signs of softness in consumer demand.
- Rate cuts later this year remain possible if trade uncertainty and weak business investment begin to materially weigh on growth.
Read the full transcript below:
ANDREW: The Bank of Canada has another print to digest before next week’s announcement on interest rate policy. Canada’s November retail sales rose 1.3 per cent, although it looks as though December saw a downturn, according to early estimates. Let’s get more from Earl Davis, head of fixed income and money markets at BMO Global Asset Management. Earl, always great to see you. If you could generalize, what is the picture for the Canadian consumer right now? We know confidence is not that high.
EARL: That’s true, but first of all, good morning, Andy. Pleasure to be here as always. For the Canadian consumer, let’s start with the retail sales number. It basically beat expectations. It came in largely as expected, but beat on the headline number, especially on the core. When you take out autos and things like that, 1.7 per cent versus one per cent expected looks good from a headline perspective.
But there’s a lot of noise in that number, especially from B.C. strikes. Beverages and beer sales were actually the driver of that, so you have to discount the number a bit. That points to the advance number for next month, which is minus 0.5 per cent. So it’s pointing to a weaker consumer, which isn’t surprising in this environment given the uncertainty, global uncertainty and economic uncertainty. It does point to a weaker consumer going forward for the balance of the year.
ANDREW: Does that matter for the Bank of Canada as they assess interest rates and consumer behaviour, or what are the crucial metrics they look at — labour?
EARL: Obviously it’s an important metric, but let’s stick with this first. Does it impact them right now? No. We believe the Bank of Canada will be on hold next week. This number doesn’t change anything. Remember, the advance number is just an indication and could change as we get the final data.
As for the important metrics the Bank of Canada looks at, there are two that I would call top-tier. The first is inflation, and inflation still remains sticky. It’s still above their target band, call it the midpoint of two per cent. That’s an important consideration and one of the reasons why they’ll remain on hold. When you look at the actual cost of goods, commodities and all the things that will impact inflation in the future, they don’t look like they’re going down.
The only thing that’s negative from an inflationary perspective is rents, but the influence of that on the overall inflation number is limited. The second most important number they look at is employment, because that reflects the consumer’s ability to spend, whether it’s on mortgages, rent or, most especially, consumer goods. As you’ve seen, we’ve been getting surprisingly strong employment numbers. The unemployment rate is still fairly elevated, but not as elevated as the market expected. That’s another reason to be on hold.
Our longer-term outlook is that we do expect eases this year — between one and two by the end of the year. That’s driven by uncertainty surrounding the USMCA and the lack of business investment. Because of that uncertainty, we feel it will have a drag or negative impact on Canadian growth.
ANDREW: The interesting thing is at what point Bank of Canada rate policy becomes aggressively stimulative for the economy if they do cut again. Is it fair to say they’re trying to rev up the economy?
EARL: That brings in the third most important number, which is growth and GDP. Right now, growth is positive. When do they become more stimulative? They would argue they’re kind of neutral to mildly stimulative now. They become more stimulative if growth really takes a downturn, and that’s why I point back to the top-tier numbers.
Employment is usually a leading indicator of growth. Fewer people employed means less production, and it’s a leading indicator of consumer spending and the ability to afford rent. Until you see deterioration in those numbers, they’re comfortable being on hold.
The reason we believe there will be an ease toward the end of the year is extended uncertainty around the USMCA, which may require a bit of extra support for the economy. Even though one or two eases won’t have a dramatic impact, they do affect the psyche of the consumer, and that’s very important.
I’ll add one more thing the Bank of Canada pays close attention to, and that’s the Business Outlook Survey. It just came out last week and reflects what business owners plan to do going forward. That’s where the uncertainty around the USMCA is being reflected. If you see further deterioration there, that could accelerate the stimulus the Bank of Canada delivers through interest rates.
ANDREW: Obviously, 10-year bond yields in Canada are a powerful driver of mortgage rates and business borrowing costs, and that yield has been pretty flat for more than a year, with no big swings.
EARL: Yeah, it’s been surprisingly flat. Part of the reason is that one of the largest influences on the Canadian 10-year rate is actually the U.S. 10-year rate. Ever since Bessent in the U.S. said the Treasury would support yields if needed, and tariff revenue reduced the amount of issuance, U.S. 10-year yields have been relatively flat. That’s kept Canadian 10-year bonds flat as well.
That’s one of our underlying investment premises. We believe 10-year yields will stay within the 2025 range, and we’re right around the midpoint now, or just below it. There’s nothing to do on sovereign bonds right now, but if we do get a spike higher — like it looked possible earlier this week before President Trump backed down on more aggressive rhetoric toward Greenland — then we become better buyers.
The benefit of stable 10-year rates is that it makes corporate bonds increasingly attractive. You get a stable coupon yield. You take the 10-year rate — about 3.43 per cent in Canada or 4.25 per cent in the U.S. — add the corporate spread, and you end up with yields above inflation. That’s why we’re overweight corporate bonds. We like buying them on volatility or any backup in yields. It’s almost a parallel to equity markets in that sense.
ANDREW: Earl, thank you very much for joining us. Earl Davis, head of fixed income and money markets at BMO Global Asset Management.
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This BNN Bloomberg summary and transcript of the Jan. 23, 2026 interview with Earl Davis are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
