By Promit Mukherjee

OTTAWA (Reuters) -Canada’s retail sales contracted for a third consecutive month, missing expectations, data showed on Friday, underscoring the softness in economic growth and impact of high interest rates on consumer spending.

Retail sales in March dropped by 0.2% as consumers curtailed purchases of furniture, home furnishings, electronics and appliances, Statistics Canada said, adding that for the quarter that ended March 31, sales were down 0.2%.

Analysts polled by Reuters had forecast no change in retail sales from what they were in February.

A preliminary estimate of April’s sales figure showed that sales were likely to increase by 0.7%, but this data is sourced only from half of the total respondents usually surveyed and prone to revision, Statscan said.

“The waning of momentum over the quarter reflects consumer caution as mortgages come up for renewal at higher interest rates, and sales look even worse in per-capita terms, with volumes well below year-ago levels,” Katherine Judge, Director & Senior Economist at CIBC Capital Markets, wrote in a note.

While the April sales number shows a jump, that is partly led by higher gasoline prices, she added.

Sales were down to C$66.4 billion ($48.41 billion), impacted by a drop in sales in seven out of nine subsectors, Statscan said.

In volume terms, sales decreased by 0.4% in March.

The Bank of Canada (BoC) is likely to cut interest rates at its June 5 monetary policy decision announcement as a sustained drop in inflation and lackluster growth have added to the evidence that underlying inflation has been most likely tamed.

Friday’s sales numbers are likely to give it one more evidence the economy is losing steam under a near-23 year high interest rate of 5%.

Money markets trimmed their bets for a rate cut in June to 58% from 60% after the retail sales data was published.

The Canadian dollar was trading 0.15% stronger 0.15% in early trade to C$1.3709 against the U.S. dollar, or 72.94 U.S. cents.

Core retail sales, which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers, were down 0.6% in March, registering a first decrease in core retail sales in four months, the statistics agency said.

Strain on consumer spending was also seen at food and beverage retailers, whose sales contribute up to almost a fifth of total retail sales. It was down by 0.4% as customers spent less at supermarkets and grocery stores and alcohol, Statscan data showed.

The only two sectors which contributed to a rise in sales were motor vehicle and parts dealers, and building materials and related equipments.

Motor vehicle and parts dealers, which contribute more than a quarter of total sales, rose 1% and was propped up as consumers bought new cars helping sales at dealerships to rise by 1.1%.

($1 = 1.3715 Canadian dollars)

(Reporting by Promit Mukherjee and Dale Smith; Editing by Chizu Nomiyama and Nick Zieminski)

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