Ottawa — Canadian retail spending demonstrated notable resilience in the first quarter of 2026, rising 0.7% in February and an estimated 0.6% in March, delivering three consecutive months of gains for the first time since spring 2023 and tracking a solid roughly 2.1% quarter-over-quarter increase.
“It suggests that consumers were on a robust footing at the start of the year and are likely in a better position to face the sharp rise in energy prices,” said Charles St-Arnaud, chief economist at Servus Credit Union.
February retail sales climbed to C$72.1 billion, according to Statistics Canada data released on April 24. The increase was broad-based, with seven of nine major subsectors posting gains. Core retail sales, excluding volatile motor vehicles and gasoline stations, advanced a healthy 0.6%. In volume terms (adjusted for price changes), overall sales rose 0.3%, while year-over-year growth stood at 3.8%.
“Retail sales suggest that before the impact of higher energy costs from the Iran conflict, Canadian consumers were quite resilient,” noted St-Arnaud.
Motor vehicle and parts dealers led February’s advance with a 1.0% increase, supported by strong demand for both new and used vehicles. General merchandise retailers, food and beverage stores, and clothing outlets also contributed positively. Softness was limited mainly to building materials and garden equipment categories.
“We’ve seen relatively healthy spending in the first quarter,” added St-Arnaud.
“Overall, it appears that retail sales in Q1 have posted their best quarter for growth since before U.S. trade tensions started to negatively impact consumer sentiment,” said Andrew Grantham, senior economist at CIBC Capital Markets.
Fuel Costs Set to Test Consumers
The early-year momentum now confronts a significant headwind as surging global oil prices tied to the ongoing Iran conflict drive Canadian gasoline prices sharply higher. While higher pump prices inflate headline retail figures in the short term, they erode disposable income for other purchases.
“With higher pump prices limiting the ability of some households to make discretionary purchases, we expect consumer spending to slow again in volume terms during the second quarter,” warned Andrew Grantham of CIBC.
The duration and intensity of Middle East tensions will likely dictate the extent of any consumer pullback. Prolonged elevated energy costs could force households to curtail spending on big-ticket items, dining out, travel, and non-essential goods. A quicker resolution might allow fuel prices to moderate and help sustain some of the recent strength.
“Softer spending volumes and signs of further weakness in March suggest consumers can only hold on for so long,” said Shelly Kaushik, senior economist at Bank of Montreal Capital Markets.
Beyond energy prices, Canadian households face additional pressures including a cooling labor market, persistent housing affordability challenges, and ongoing uncertainty around U.S.-Canada trade relations. Many consumers remain heavily indebted after years of elevated borrowing costs, limiting their capacity for further discretionary outlays.
Provincial data showed broad strength, with eight of ten provinces recording increases in February. Particularly strong gains appeared in Nova Scotia and Manitoba, indicating the rebound extended beyond major urban centers.
On the positive side, the Bank of Canada’s earlier interest rate cuts are expected to ease financial pressure on variable-rate borrowers later in the year. However, this relief may arrive too late to fully offset the immediate impact of the energy shock.
“The estimated rise in retail sales in March was softer than some economists expected after prices at the pump notched the biggest one-month jump on record,” noted analysts at Capital Economics, underscoring early signs of price sensitivity.
For retailers, the outlook is mixed. Necessity-driven categories such as groceries and fuel may continue to see nominal gains, while discretionary sectors like clothing, electronics, and home improvement could experience margin pressure if volumes weaken. E-commerce, which represented about 7% of total retail trade in February, may provide some cushion as cost-conscious shoppers hunt for deals online.
Longer term, the first-quarter resilience highlights underlying household strength amid global uncertainty. Yet the combination of geopolitical risks and domestic constraints means the coming months will be pivotal in determining whether this rebound can endure or if it marks a final surge before a more pronounced slowdown.
Market participants and policymakers will watch upcoming GDP, inflation, and consumer confidence releases closely. Retail sales remain a critical gauge of household consumption, which drives a substantial share of Canada’s overall economic activity. Any sustained softening could prompt revisions to growth forecasts for the second half of 2026.
JbizNews Desk Canada
