By Promit Mukherjee
OTTAWA (Reuters) -Canada posted a surprise 0.2% month-on-month decline in retail sales in November led by a slowdown in sales of food and beverages, data showed on Friday, although initial estimates suggested a rebound during the December holiday season.
Statistics Canada's preliminary estimate of a 0.8% gain in December, if realized, would mean retail sales climbed in eight out of 12 months last year, indicating that interest rates at a 22-year high have yet to fully sink in.
"The consumer fundamentals are...not spectacular, but they're better than some of the more bearish voices out there," said Derek Holt, head of capital markets economics at Scotiabank.
In quarterly volume terms, retail sales saw the strongest gain since the first quarter of 2023, he added.
Analysts polled by Reuters had expected sales to be flat in November from October.
The Bank of Canada (BoC) is expected to hold interest rates steady next week as inflation remains above its 2% target, despite falling from last year's peak and with signs of slowing growth.
Markets and economists expect the BoC to start trimming rates during the first half of the year.
"Although the advance estimate for December suggested a 0.8% increase in sales, we expect that strength to be fleeting given the weakening labor market and the impact of higher interest rates on spending," said Katherine Judge, an economist at CIBC Economics.
November retail sales totaled C$66.6 billion ($49.45 billion). Food and beverage sales, which account for almost a fifth of the total, fell 1.4% from the previous month.
Sales dropped in four out of nine subsectors and in volume terms were down 0.2% from October. The overall drop was partly offset by a 0.5% gain in motor vehicle and parts dealers, a third consecutive monthly increase.
The automotive sector is the biggest component of retail sales, contributing a quarter of the total.
Core retail sales, which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers, fell 0.6% in November. However, clothing, clothing accessories, shoes, jewelry, luggage and leather goods retailers rose 1.5%, the biggest component gain.
($1 = 1.3468 Canadian dollars)