Dip in February retail sales strengthens case for another BoC rate cut

A second straight monthly decline in Canadian retail sales is adding to expectations that the Bank of Canada will ease interest rates in June.

Retail sales fell 0.4% to $69.3 billion in February, dragged down by a sharp drop at auto dealers and continued weakness in housing-related categories.

It’s the second straight monthly drop and caps off a sluggish first quarter for Canadian consumers.

The biggest hit came from motor vehicle and parts dealers, where sales tumbled 2.6%. All four store types in the category were down, with new car dealers posting a 3.0% drop.

Meanwhile, core retail sales—which strip out gasoline and auto-related purchases—rose a modest 0.5%, buoyed by grocery and liquor store sales. In volume terms, retail sales also declined by 0.4%.

Seven provinces recorded monthly declines, with Quebec (-0.9%) and Nova Scotia (-2.6%) leading the way. Manitoba stood out with a 1.8% gain, thanks to higher vehicle sales.

E-commerce sales also dipped slightly, down 0.3% to $4.3 billion, representing 6.3% of all retail trade.

What this means for future rate cuts

While February’s data show ongoing consumer fatigue, March could look temporarily better. StatCan’s early estimate suggests sales rebounded by 0.7% last month—likely boosted by Canadians rushing to buy big-ticket items before new tariffs kicked in.

But economists from BMO and CIBC agree that the bounce isn’t likely to last.

This “is a look in the rearview mirror at this point,” BMO’s Shelly Kaushik wrote, noting that consumer sentiment has since taken a hit from the ongoing trade war.

CIBC’s Katherine Judge agreed, pointing to growing uncertainty and signs that job losses could start mounting—factors that could keep shoppers on the sidelines heading into spring.

Judge said the Bank of Canada should have “enough evidence of GDP weakness by the
June meeting to cut rates by 25bps.”

That’s in line with what the Bank of Canada has heard from consumers directly. Its latest Canadian Survey of Consumer Expectations shows households are as anxious about the economy now as they were during the height of the pandemic.

OIS market pricing currently puts the odds of a 25-basis-point rate cut at roughly 66% for the Bank’s June 4 meeting, which would bring its policy rate down to 2.50%.

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Last modified: April 28, 2025

Steve Huebl

Steve Huebl is a graduate of Ryerson University's School of Journalism and has been with Canadian Mortgage Trends and reporting on the mortgage industry since 2009. His past work experience includes The Toronto Star, The Calgary Herald, the Sarnia Observer and Canadian Economic Press. Born and raised in Toronto, he now calls Montreal home.