With the next interest rate announcement from the Bank of Canada scheduled for Wednesday morning, the big question is: When will borrowing costs start to come down?

The word on the street—and we agree—is that the Bank will not change its benchmark rate on Wednesday and leave the question of when it will start cutting something of a mystery.

As such, we will be watching for clues from the Bank in the announcement itself, in the quarterly Monetary Policy Report that will accompany it, and in any subsequent speeches and media commentary from Bank officials.

Among the many economic trends the Bank considers is national retail sales. Flat or falling sales are a sign the economy is cooling and, in turn, helping to keep a lid on price growth.

With the latest official retail figures released by Statistics Canada just before the weekend, we can get a sense of where national retail sales stood as of November.*

Looking at the volume of sales (i.e. editing out price increases) and adjusting for seasonal effects, national retail sales decreased four times over the six months from June 2023 to November 2023. This trend, moreover, is against a backdrop of ongoing population growth.

Added to the flattening of retail spending in Canada (see chart), the Bank of Canada’s Canadian Survey of Consumer Expectations,** found that more consumers are cutting their spending in response to high inflation and high interest rates. “Further spending adjustments are expected, with many mortgages coming up for renewal in the near term.”

Thankfully, retail sales volumes have slowed rather than crashed, helping to leave open the possibility of a soft landing for the economy this year.

On their own, retail sales statistics are not enough to sway the Bank of Canada one way or another, but the fact that consumer demand seems to be slowing strengthens the case that interest rates have likely peaked and cuts may be coming deeper into the year (our call is for an initial cut in June).

*This is not as current as we would like, but there is always about a seven week lag between the reference month and when the official data are released.

**The survey took place between November 1 and 17, 2023.

Answer to the previous trivia question: According to The Weather Network, the all-time lowest temperature recorded in Edmonton (either for the city or the airport station) is -49.4°C. The record was set on January 19, 1886.

Today’s trivia question: (Courtesy of Water Cooler Trivia): A permanent art installation just outside the town of Marfa in West Texas was built to resemble what high-end retail store?