OTTAWA (Reuters) - Canadian retail sales unexpectedly declined in December as a pullback at electronics stores offset higher purchases of new cars, putting fourth-quarter economic growth on track to be below the central bank's forecast.
The 0.8 percent drop reported by Statistics Canada on Thursday surprised economists, who had anticipated an increase of 0.2 percent. It was the biggest decline since March 2016, while volumes also fell 0.8 percent.
Sales at electronics and appliance stores tumbled 9.1 percent, giving back some of November's surge on the back of Black Friday promotions, which occur the day after the U.S. Thanksgiving holiday and have become increasingly important for Canadian retailers.
Overall, declines were broad-based, with sales down in six out of 11 sectors, including general merchandise stores, where purchases dropped 5.3 percent.
Analysts said the disappointing reading put the economy on track for growth of about 2 percent in the fourth quarter, below the Bank of Canada's 2.5 percent forecast. Statistics Canada will release fourth-quarter growth figures next week.
The potential growth miss was likely to keep the central bank cautious in raising interest rates further, economists said, and solidified bets the bank will leave rates unchanged at its upcoming March meeting.
"Don't expect the totally data-dependent Bank of Canada to change its dovish language anytime soon, as it will take a solid dose of positive data surprises to make (Governor Stephen) Poloz decidedly hawkish again," Fred Demers, chief Canada macro strategist at TD Securities, wrote in a note.
The Canadian dollar weakened to a two-month low against the greenback immediately following the report. [CAD/]
Market odds that the bank will remain on hold on March 7 rose to 96 percent, though another rate hike is fully priced in by July. The bank has raised rates three times since July 2017 amid a strengthening economy and job market.
The monthly decline in retail sales was tempered by a 2.1 percent increase in sales at motor vehicle and parts dealers as Canadians bought more new cars. Excluding autos, retail sales fell 1.8 percent.
Despite December's decline, Canadian consumers put in a strong showing in 2017, with retail sales up 6.7 percent for the year, the highest annual growth rate since 1997, the statistics agency said.
Sales last year were lifted by higher prices, as well as robust vehicle sales, which cracked the 2 million mark for the first time.
(Reporting by Leah Schnurr; Editing by Bernadette Baum and Paul Simao)