By Promit Mukherjee

OTTAWA (Reuters) -Canada’s retail sales dropped in June, data showed on Friday, as consumers continued to feel the impact of high interest rates and cut back on discretionary purchases.

Retail sales, which comprise local sales of vehicles, clothing, furniture, food and beverages among other items, dropped 0.3% on a monthly basis, less than last month’s 0.8% decline.

The sales were pulled down primarily as fewer customers bought vehicles and automotive parts, but also by lower purchases of personal care products and sporting goods, Statistics Canada said.

Analysts had forecast that in June sales would drop by 0.3% and excluding automotive and parts, they had estimated it would drop by 0.2%.

July’s retail numbers, which surveys only half of the respondents for a preliminary estimate, showed that sales likely grew by 0.6%, according to a flash estimate by Statistics Canada. 

The Bank of Canada trimmed its key policy rate for the second time in a row in July, bringing it down to 4.5%, after keeping it at a more than 23-year high for a year. 

Such elevated levels have crimped consumer spending and business investments and muted economic growth, even though they helped in easing consumer prices. 

At the Bank of Canada’s last monetary policy meeting last month, Governor Tiff Macklem hinted at shifting the bank’s focus to boosting the economy rather than suppressing inflation.

The statistics agency will report Canada’s GDP numbers for June and for the second quarter next week and it will be the last important data point before the bank’s next monetary policy decision announcement on Sept. 4.

Money markets are expecting the Bank of Canada will cut rates by another 25 basis points next month and follow it with two more cuts one each in October and December.

The Canadian dollar was trading up 0.24% to 1.3582 against the U.S. dollar, or 73.63 U.S. cents at 1240 GMT. 

The two-year government bond yield was down 2.1 basis points to 3.404%.

For the second quarter, retail sales were down 0.5% and in volume terms it was down 0.3%, Statscan said.

“The decline in sales for the quarter shows that consumers are continuing to struggle as mortgages come up for renewal and the labor market weakens, which will leave the BoC on track to cut interest rates at each of the remaining three meetings this year,” Katherine Judge, Director & Senior Economist at CIBC Capital Markets wrote in a note.

Retails sales were at C$65.73 billion ($48.39 billion), with sales dropping in four out of nine subsectors. In volume terms, sales were up 0.1% in June.

(Reporting by Promit Mukherjee; Additional reporting by Dale SmithEditing by Andrew Heavens and Franklin Paul)

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