Canadians kept their wallets open and continued spending in January early estimates show, in another sign that consumers remain resilient in the face of high inflation and interest rates.

Statistics Canada on Feb. 21 published preliminary data that indicated retail sales increased 0.7 per cent last month, gaining on momentum from December when retail sales grew 0.5 per cent. In volume terms, overall sales increased 1.3 per cent in the final month of 2022.

Purchases from car and parts dealers, up 3.8 per cent, and general merchandise stores, up 1.7 per cent, experienced the biggest gains in December.

“Some of the resilience in the headline was due to strong auto sales, as improved auto production helped to clear the backlog of orders. Consumers also got some reprieve from financial headwinds at the end of the year, marked by a sizeable drop in gasoline prices,” Ksenia Bushmeneva, an economist at Toronto-Dominion Bank, wrote in a note.

The Bank of Canada will keep an eye on Canadians’ spending as it works to bring down inflation with interest rates. The consumer price index rose 5.9 per cent in January, Statistics Canada reported on Feb. 21, much slower than the 6.3 per cent gain in December, and evidence that the central bank’s efforts are working, even as the labour market proves resilient. Canadian employers hired more than 200,000 workers in December and January.

Statistics Canada’s retail sales report indicated that building materials suppliers and garden equipment dealers experienced the largest declines among core retail categories. “Sales declined for four consecutive months amidst higher interest rates and deteriorating housing market conditions,” the agency said in the report.

E-commerce sales dropped again from November, down 2.4 per cent year over year and accounted for 6.5 per cent of total retail trade.

Royce Mendes, head of macro strategy at Desjardins Capital Markets, said in a note to clients that much of the strength in retail could be “fleeting” once auto dealers ship out a backlog of customer orders.

“As a result, we see today’s data as consistent with the Bank of Canada’s forecast that the economy is set to decelerate this year, an outcome that should allow central bankers to remain on hold in the months to come.”

Bushmeneva noted that if the labour market and consumer spending continue to post gains, the central bank may need to reconsider its decision to keep interest rates on hold.

“If upside data surprises and resilience in consumer spending and employment continue, they could eventually force the Bank of Canada to end its pause and return to the inflation battle,” Bushmeneva wrote.

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