People shop for cheese at a cheese shop at Atwater Market in Montreal, Quebec, Canada March 9, 2025. REUTERS/Graham Hughes/File Photo

By Promit Mukherjee

OTTAWA (Reuters) -Canada's retail sales rose as expected in June as shoppers bought more food and beverages, official data showed on Friday, indicating a rebound from a slump the month before.

Retail sales in June increased by 1.5% on a monthly basis to C$70.25 billion ($50.49 billion) compared with a contraction of 1.2% in May, Statistics Canada said, adding that sales increased by a similar rate in volume terms as well.

The outcome was in line with analyst expectations in a Reuters poll.

However, excluding sales at automobiles and parts dealers, retail sales rose 1.9%, beating the poll forecast of 1.1%.

In a flash estimate - often prone to changes - Statscan projected that retail sales in July would fall 0.8%.

Retail sales, which include sales of cars, furniture, food, gasoline and many other items, are considered an early indicator of gross domestic product growth and contribute around 40% to total consumer spending, a prime contributor to economic growth.

Analysts and economists track the retail sales number closely to gauge the health of the domestic economy.

"The big picture suggests consumers are holding up despite ongoing labour market slack and elevated trade uncertainty," senior economist Shelly Kaushik at BMO Capital Markets wrote in a note.

Canada's retail sales have been on a volatile path since U.S. President Donald Trump imposed tariffs on Canada and it retaliated with its counter levies. But lately, the impact of tariffs has been subdued and largely isolated within the impacted sectors of steel, aluminum and automobiles.

Statscan said 27% of retail businesses were impacted by the trade tensions in June, compared with 32% in May, with the most common impacts being price increases, change in demand for product and delays in the supply chain.

Sales at motor vehicles and parts dealers, which is the biggest contributor to retail sales at over 27%, grew the least, inching up 0.2% in June after a slump of 3.4% in May.

This sector had taken a beating after the U.S.-Canada trade war as consumers curtailed spending on big ticket items fearing economic uncertainty.

Food and beverage sales, which accounts for nearly a fifth of total retail sales, registered a solid increase in June of 2.3% as robust sales were observed at supermarkets, convenience retailers and liquor stores, Statscan said.

($1=$1.3914 Canadian)

(Reporting by Promit Mukherjee and Dale Smith; Editing by Mark Potter and Mark Porter)