Canadian retail sales increased by more than expected in June, but the headline number was largely driven by stronger vehicle sales and a 6.2 percent monthly jump in oil prices – measures of core consumer spending landed much closer to consensus projections, and estimates for July are pointing to the first drop in seven months.

Data released by Statistics Canada this morning showed retail sales rising 1.1 percent on a month-over-month basis in June, beating consensus expectations for a 0.4 percent gain. Sales at auto and parts dealers rose 1.8 percent, while gas station receipts jumped 3.9 percent. Sales excluding autos rose 0.8 percent, while the core measure rose a more-modest 0.2 percent.

In volume terms, receipts rose just 0.2 percent in the month.

An advance estimate showed overall receipts dropping -2 percent in July, but changes in gasoline prices are once again likely to have played a major role.

The loonie dropped in the minutes after the release, and implied interest rate expectations nudged slightly lower. By a slight margin, markets still expect the Bank of Canada to lift rates by three quarters of a percentage point in September, bringing the overnight benchmark to 3.25 percent and threatening to weaken consumer demand across one of the world’s most spectacularly-leveraged household sectors.

Karl Schamotta, Chief Market Strategist