Canada’s retail sales rose in February but came in below expectations, signalling continued consumer resilience even as momentum shows early signs of softening. The data points to steady underlying demand, with strength in vehicle sales offset by broader uncertainty.
BNN Bloomberg spoke with Charles St-Arnaud, chief economist at Servus, who said spending remains solid but warned that rising gasoline prices and weakening purchasing power could weigh on consumer activity in the months ahead.
Key Takeaways
- Retail sales increased 0.7 per cent in February to $72.1 billion, below expectations of a 0.9 per cent gain.
- Core sales, excluding autos, rose 0.5 per cent, pointing to steady but slightly softer underlying demand.
- Consumer spending remains resilient, supported by improved incomes and strong investment returns.
- Higher gasoline prices are expected to lift nominal sales in March but may mask weaker real consumption.
- Sustained energy cost pressures could reduce purchasing power and lead to softer retail activity in coming months.
Read the full transcript below:
ROGER: We have breaking economic news. We’re getting the latest retail sales numbers for February, and they increased 0.7 per cent to $72.1 billion. Analysts had expected 0.9 per cent, and if you remove automobiles, sales rose 0.5 per cent month over month. The survey estimate was about 0.8 per cent. Here to provide some in-depth analysis is Charles St-Arnaud, chief economist at Servus. Charles, thank you for joining us.
CHARLES: Good morning.
ROGER: Off what analysts were expecting, but still within the range?
CHARLES: Yes. We were expecting plus 0.9 per cent, which was the preliminary number in the previous release, so it’s hard to diverge too much from that. When you look at the details, it’s roughly as expected. Retail sales in February remain robust and continue to show resilience on the consumer side. Most of the strength was driven by motor vehicle sales, but when you look at core — removing motor vehicles and gasoline — it was still quite solid at plus 0.5 per cent.
When we look at the preliminary number for March, it suggests continued resilience, but we need to be more cautious. March will be distorted by a price effect. Gasoline prices have increased quite significantly, so that could be biasing retail sales slightly to the upside.
TONY: Charles, a question on interest rates. What level of retail sales would it take — would it have to be negative — for the Bank of Canada to consider a rate cut?
CHARLES: It’s not necessarily just retail sales. When the Bank of Canada looks at the economy, it’s more about overall weakness. Retail sales suggest that before the impact of higher energy costs from the Iran conflict, Canadian consumers were quite resilient. We’ve seen relatively healthy spending in the first quarter.
On that basis alone, there wouldn’t be justification for a rate cut. Where the Bank will be more concerned is the labour market. We’ve seen ongoing weakness — more of a stalled labour market. If the economy slows and layoffs begin, that’s when the Bank would become more concerned, and that could trigger a rate cut. But we also have to consider upside risks to inflation from higher energy prices.
ROGER: Where is this resilience coming from? We’ve talked about inflation, gas prices potentially rising, and concerns about the economy, yet people are still spending.
CHARLES: A key factor is that purchasing power stagnated significantly in recent years — through 2023, 2024 and much of 2025. But in the second half, we started to see improvement in disposable income as inflation came under control. Consumers felt more at ease and began spending again.
There’s also a wealth effect from strong investment returns over the past year. That has helped provide momentum entering 2026 and allowed households to absorb some of the shock from the Iran conflict.
TONY: What do you expect for March data, given the sharp increase in gas prices?
CHARLES: The preliminary number suggests robust spending in March, but it’s a nominal figure, so it includes price effects. The question is how much is driven by higher gasoline prices. Given how elevated prices are, there is likely still some real increase.
The bigger question is what happens in April, May and June. If gasoline prices remain high, that will significantly affect purchasing power and could reduce discretionary spending, which would weigh on retail sales.
ROGER: Will that affect motor vehicle and parts dealers? Those numbers were fairly strong. Why did we see that increase?
CHARLES: Part of it reflects improved consumer confidence in late 2025 and early 2026, encouraging larger purchases. Also, the return of the federal rebate on EVs likely supported motor vehicle sales in February.
However, there are indications that sales were weaker in March. We’ll need to see whether that’s payback for a strong start to the year or a shift in behaviour due to uncertainty and reduced purchasing power.
ROGER: Looking provincially, Quebec was up 1.7 per cent, with Montreal up 1.9 per cent. Why is Quebec outperforming?
CHARLES: Quebec’s economy has been relatively strong in recent years, even with trade pressures. It has been more resilient than Ontario, which is more exposed to manufacturing and U.S. trade, and therefore more affected by tariffs.
ROGER: Alberta, meanwhile, was down 1.9 per cent, largely due to motor vehicle and parts dealers. What’s behind that?
CHARLES: In Alberta, motor vehicle sales tend to be more volatile than in other provinces, partly due to fleet purchases and ties to the investment cycle. We saw strong sales earlier in the year, so this may be payback.
Also, purchasing power has underperformed in Alberta compared with the rest of the country, largely because wage growth has been weaker. That’s weighing on retail sales.
ROGER: We’ll have to leave it there. Charles, thank you for your time.
CHARLES: Thank you.
ROGER: Charles St-Arnaud, chief economist at Servus.
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This BNN Bloomberg summary and transcript of the April 24, 2026 interview with Charles St-Arnaud 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.
