People wait in line to enter a clothing store in a shopping mall in Montreal, Saturday, January 15, 2022, as the COVID-19 pandemic continues in Canada. Statistics Canada says retail sales rose 0.1 per cent to $59.9 billion in February as gains in sales at clothing and clothing accessories stores and gasoline stations were offset by lower sales at motor vehicle and parts dealers.THE CANADIAN PRESS/Graham Hughes

OTTAWA - Retail sales edged higher in February as Canadians went shopping for new clothes and spent more filling up at the gas pumps.

Statistics Canada said Friday retail sales rose 0.1 per cent to $59.9 billion in February, while core retail sales — which exclude sales at gasoline stations and motor vehicle and parts dealers — added 1.4 per cent.

However, in volume terms, retail sales fell 0.4 per cent in February.

TD Bank economist Ksenia Bushmeneva said consumer spending is expected to remain robust in the near-term, supported by easing public health restrictions, significant pent-up demand and a healthy labour market.

"But higher prices and interest rates will begin to weigh on household budgets in the second half of the year, prompting consumers to tighten their purse strings," Bushmeneva wrote in a report.

"Retail sales may also see some weakening as consumption continues to shift away from goods and toward services, such as travel and hospitality."

Sales in February were up in six of the 11 subsectors tracked.

Statistics Canada said sales at clothing and clothing accessories stores gained 15.1 per cent for the month, while building material and garden equipment and supplies dealers rose 5.6 per cent. Sales at gasoline stations added 6.2 per cent.

Meanwhile, sales at motor vehicle and parts dealers fell 5.1 per cent, the largest drop for the group since a 6.2 per cent drop in December 2020. General merchandise stores saw sales drop 1.2 per cent.

Looking ahead, Statistics Canada said its initial estimate for retail sales in March suggests a gain of 1.4 per cent for the month, but cautioned the figure will be revised.

Nikita Perevalov, director of economic forecasting at Scotiabank, said a large part of the increase in March was likely due to high prices as the annual inflation rate for the month was 6.7 per cent.

"High consumer prices point to a vulnerability at the heart of the Canadian economy — household budgets may not be able to withstand for long record increases in prices of food and energy, forcing weaker growth in spending on discretionary items," Perevalov wrote in a note to clients.

The Bank of Canada raised its key interest rate target by half a percentage point to one per cent last week and warned more rate hikes are in the works as it looks to bring inflation under control.

The consumer price index in March posted its largest increase in more than 30 years as it rose 6.7 per cent compared with a year earlier, a full percentage point higher than its year-over-year increase in February.

This report by The Canadian Press was first published April 22, 2022.

News from © The Canadian Press, 2022