Canadian retail sales jumped 2.5% in December to $69.6 billion, marking the strongest monthly gain since mid-2022, according to Statistics Canada.

The broad-based increase, spanning all nine subsectors, was led by food and beverage retailers (+3.5%) and motor vehicle and parts dealers (+1.9%). Core retail sales, which exclude gasoline stations and motor vehicle and parts dealers, also climbed 2.5%, rebounding from a 1.0% decline in November.

A GST holiday-fuelled spending spree

Analysts widely attribute December’s retail strength to the GST/HST holiday, which began on December 15, prompting many consumers to postpone purchases until mid-month.

Desjardins noted that December’s retail performance lifted the three-month annualized rate of real sales growth to 10.2%, with per capita spending rising in both nominal and real terms after early 2024 weakness.

But while December saw a surge in spending, it appears to have been short-lived. January’s flash estimate points to a 0.4% decline in retail sales, reinforcing the view that the tax holiday’s impact was temporary.

Looking ahead, broader economic uncertainty could weigh on consumer confidence, according to Tony Stillo, Director of Canadian Economics at Oxford Economics.

“We’ll have to wait and see the extent to which heightened uncertainty from Trump’s threatened trade war with Canada causes households to curtail spending, especially for big-ticket items,” he wrote.

CIBC‘s Andrew Grantham also warned that household spending in Q1 could take a hit amid growing trade tensions.

“Recent tariff uncertainty may have resulted in households tightening the purse strings again if there was concern regarding employment prospects,” he wrote. “We expect consumer spending to slow in the first half of this year, before accelerating again in H2 and 2026 if a worst-case tariff scenario is avoided.”

Implications for the Bank of Canada

December’s stronger-than-expected retail sales add to the case that the Bank of Canada will hold rates steady in March, reinforcing market odds that had already placed a cut at just 30%.

“It seems Santa had plenty of gifts for Canadians in December, as it’s difficult to find any concerning spots in this report,” wrote BMO economist Shelly Kaushik. “Even if the momentum fades into the new year, these figures add to the argument for the Bank of Canada to pause at next month’s meeting.”

It’s a view shared by others, including Desjardins senior economist Maëlle Boulais-Préseault, who points out that Q4 annualized real GDP growth is tracking at 1.9%, slightly above the BoC’s January forecast of 1.8%.

However, Boulais-Préseault expects that high housing costs, a wave of upcoming mortgage renewals, and the possibility of a trade war with the U.S. could drag down consumer confidence and spending later in 2025.

“As such, while we expect the Bank to take a pause in its rate-cutting cycle in March, it’s likely just a brief pitstop as the central bank is likely to return to rate cuts thereafter,” she wrote.

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Last modified: February 21, 2025