September retail sales in Canada were below expectations, leading analysts to adjust Q4 predictions and timelines on an interest rate hike.

Statistics Canada says retail sales edged up 0.1% to $49.1 billion in September, boosted by sales at gasoline stations due to higher prices. Excluding sales in this subsector, retail sales fell 0.2%.

Sales at gasoline stations were up 2.6% as prices rose, largely due to supply disruptions caused by Hurricane Harvey. In volume terms, sales at gasoline stations declined 2.5%.

After removing the effects of price changes, retail sales in volume terms fell 0.6%. The consensus expectation for the month had been a gain of 1%.

Derek Holt, vice-president of Capital Markets Economics at Scotiabank, called the report “broadly disappointing,” in a research note. He predicts “continued softness” in the retail sector for the fourth quarter.

“That, in turn, plays to the argument that the retail sales surge over the prior three quarters, up to Q2, was brought forward at the expense of future sales due to the huge cash infusion offered by the large increase in child benefit payments starting in July of last year that were then spent,” he said. “The consumer was overstimulated for a time and the economy is now paying the price for it, albeit modestly so on balance.”

The September numbers are another reason to expect an extended Bank of Canada hold on interest rates, he said.

Nick Exarhos, senior economist at CIBC Economics, said in a note that retail volumes had been tracking “unsustainably strong gains.”

“As a result, we aren’t panicked by the recent slowdown, even if it has come at a more aggressive pace than we had expected,” he wrote. “Indeed, real retail sales are now tracking growth of 4.5% yoy, something that’s more in line with what we would have expected given the pace of income and credit growth.”

He also expects the “stalling” in recent figures to keep the Bank of Canada on hold until spring.

Read the Scotiabank report here. Read the CIBC report here.

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