Consumers to save $600 at gas pump, but spend it on costlier imported goods

We may be saving money at the gas pump, but the increased cost of food and consumer goods is likely wiping out the benefits for most Canadian families.

That's the conclusion of a report by TD Bank on the impact of lower gas prices on retail sales.

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TD estimates the average Canadian household will save $600 at the pumps in 2015, but lose an equivalent amount because of the low Canadian dollar which is making imported food, consumer goods and services more expensive.

The news comes as Statistic Canada data shows retail sales volumes fell 1.6 per cent in the first quarter of this year.

Volume falls, prices rise

However, the trend is improving. Canadian retail sales rose a stronger-than-expected 0.7 per cent in dollar terms in March building a 1.5 per cent gain in February. That followed declines in January and December.

"The pickup in retail sales later in the quarter and earlier indications of strong motor vehicle sales in April are consistent with our expectation for stronger spending growth in the second quarter," says Nathan Janzen, a senior economist with RBC.

In dollar terms, sales rose 1.5 per cent at auto dealers and 1.3 per cent at food and beverage stores in April. Food has been one of the areas where prices have risen steeply because of the low Canadian dollar. Statistics Canada estimates Canadians are paying 3.6 per cent more for food this year than last year.

The news that overall retail sales volume was down in the first quarter reinforces the view that the Canadian economy was stalled in the quarter, says Admir Kolaj, economic analyst at TD Bank.

"This is in line with the view expressed by the Bank of Canada in its most recent Monetary Policy Report, and as such supports our view that the bank will remain on hold at next week's interest rate announcement," Kolaj wrote in a report released today.

Kolaj believes that volatile oil prices are complicating the already competitive retail environment in Canada.

He expects the cost of gasoline to keep gyrating up and down as the price of oil changes and the Canadian dollar moves with it.

Prices on the rise

"As consumers spend less on gasoline and other fuels this year, they will have the ability to devote more funds toward other items," he said.

But there won't be much chance to save that money, as the price of everything else is going up with the change already evident in the price of food and clothing. Retailers are passing on their increased costs to consumers, he said.

"We estimate that the weaker Canadian dollar could contribute about 0.8 percentage points to inflation in 2015, accounting for 40 per cent of the increase in consumer prices in the year," he said.

In his report, he anticipates a slowdown in retail spending in oil-producing regions this year, while other parts of the country might see an uptick.