Retail sales inched up 1.1 per cent to $70.7 billion in January, according to the latest

retail trade report from Statistics Canada. These figures were softer than the agency’s advance estimate, “extending the see-saw pattern that’s been in place for a year,” said Shelly Kaushik, senior economist at Bank of Montreal (BMO) in a note.

However, the January update and advance estimates for February (also about a one per cent increase) indicate retail sales volumes for the first quarter of 2026 could post their strongest quarterly gain since the fourth quarter of 2024, said Andrew Grantham, senior economist at Canadian Imperial Bank of Commerce (CIBC), in a note.

Sales were up in six of nine subsectors and led by a two per cent rebound at motor vehicle and parts dealers, following a 1.6 per cent decline in December. This was due to higher sales at new car dealers (up 2.5 per cent) and other motor vehicle dealers (up 5.6 per cent), while sales of used cars declined three per cent.

Core retail sales, which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers, rose 0.9 per cent in January.

This uptick was largely attributed by the agency to a three per cent increase in general merchandise sales, which marked a four-month streak of gains. The biggest decline in core retail came from the food and beverage sector, which dipped 0.6 per cent, thanks mainly to lower sales at supermarkets and other grocery stores.

“Momentum in services spending appears intact, based on our internal credit and debit card data, likely supported by higher-income households with greater financial buffers,” said Toronto-Dominion (TD) Bank economist Maria Solovieva in a note, though she added the Statistics Canada report was “inherently backward-looking.”

Sales at gas stations and fuel vendors were down 0.4 per cent in January.

BMO’s Kaushik said there are “mounting headwinds” for consumers given higher

energy prices amid the Iran war, which she said would likely show up in retail sales data for the month of March.

“Looking forward, the recent jump in gasoline prices will flatter the headline nominal retail sales figures in the coming months, however the squeeze to disposable incomes is likely to restrict purchases of other products and subdue overall sales volumes,” said CIBC’s Grantham.

Michael Davenport, senior Canada economist at Oxford Economics Ltd., said in a note that his firm expects households to temporarily reduce savings to maintain spending levels.

“The new federal grocery and essentials benefit is also set to hit households’ bank accounts in Q2, which will help offset the hit to real incomes,” Davenport added.

David Rosenberg, founder of independent research firm Rosenberg Research and Associates Inc., said in a note that the headline retail sales figure likely won’t help the Bank of Canada (BoC) make decisions around

interest rates , given the surge in gas prices in March that will likely depress consumer spending.

“More relevant is the well-contained trend in pre-conflict retail prices,” Rosenberg said. “Alongside the moderate (consumer price index) data, this should give the BoC some flexibility if they want to keep another rate cut as a possibility or simply delay rate hikes.”

The inflation rate had slowed in February, according to the latest consumer price data showing a 1.8 per cent year-over-year increase. This was lower than the 2.3 per cent uptick in January, though this, too, did not account for the recent spike in gas prices.

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