As expected, retail sales slipped a little in March, putting to bed any talk of a 50 basis point hike to Canadian interest rates.

Statistics Canada said retail sales stood at $25.2 billion in March, down 0.2% from February, when retailers also posted flat sales, down 0.1%.

This follows strong sales gains of at least 1.2% in January and in each of the last three months of 2001. Previously, retailers suffered a 1.6% sales drop in September after reporting flat sales since April 2001.

RBC says that the sales reading was somewhat weaker than expected. But it notes that, excluding automobiles, retail sales were up 0.2%. And, for the first quarter as whole, retail sales were up 2.6% from the fourth quarter of 2001. “This is quite remarkable when one takes into account that sales had already jumped 2.6% in the fourth quarter of 2001. Drugstores led the way in the first quarter as spending on prescription and non-prescription drugs continue to rise rapidly. Automotive and furniture sales were also strong in the first quarter, symptomatic of healthy consumer confidence.”

“Retail sales came into the first quarter like a lion, but exited like a lamb, much like the rest of the Canadian economy. That’s a development that the Bank of Canada might take note in deciding just how aggressively to raise rates in June,” says CIBC World Markets. It notes that there has been some talk of a 50 bps move, which this report should help quell.

CIBC says that the headline sales decline was right on its forecast, and leaves its projection for a 5% real GDP growth rate for the first quarter in place. “With both April employment and core CPI on the high side of expectations, the Bank of Canada will stay on its tightening course in June. But the deceleration evident in retailing will be one factor holding that rate hike to a moderate quarter point rise.”

“The softness in Canadian retail sales seen in both February and March is unlikely to last long, given the ongoing strength in employment and an April rebound in car sales,” predicts BMO Nesbitt Burns. “The expected firmness in consumer spending, along with today’s higher-than-expected CPI report, will keep the Bank of Canada on course to continue tightening.”