Auto sector propels retail sales higher in May

Strong auto sector activity helped Canadian retail sales activity rise fora third straight month in May, climbing by 0.6 per cent to $48.9billion, Statistics Canada said Friday.

The monthly increase was double the consensus expectation of economists

Sales at motor vehicle and parts dealersled the way with a gain of 2.4 per cent during the month, following a decrease in April. Statistics Canada said sales at new car dealers were up by 2.7 per cent, accounting for most of the sector's gain.

"Canadians can't seem to buy enough cars," BMO economist Benjamin Reitzes said in a note.

• Car sales hit one million by mid-year for first time ever

Excluding sales from the motor vehicles and parts dealers sector, retail sales were actually down0.1 per cent in May.

After removing the effects of price changes, retail sales in volume terms rose by 1.1 per cent.

Economists said the retail report gives support formore interest rate hikes ahead by Canada's central bank.

"Despite a soft inflation backdrop, the better-than-expected performance of the Canadian economy particularly on the domestic front should allow the Bank of Canada to follow through will another rate hike in October, fully unwinding the emergency cuts that were put in place following the oil price collapse," said TD economistDina Ignjatovic.

CIBC economist Nick Exarhos said in a commentary that the retail figures "build the case for May to be another strong month for the Canadian economy, with a real GDP gain in the area of 0.4 per cent likely."

Ignajatovic said labour market gains should help to keep household spending at healthy levels, but added that "momentum is expected to fade over the second half of the year, as a cooling housing market in Ontario is likely to constrain demand for housing related items while rising interest rates take some steam out of consumer spending overall."

"Despite a soft inflation backdrop, the better-than-expected performance of the Canadian economy particularly on the domestic front should allow the Bank of Canada to follow through will another rate hike in October, fully unwinding the emergency cuts that were put in place following the oil price collapse,"Ignajatovicadded.