08:57 AM EDT, 03/25/2025 (MT Newswires) -- Canadian retail sales were down 0.6% month over month in January despite an increase in goods prices, meaning spending fell a deeper 1.1% in volume terms, said Bank of Montreal (BMO).

That followed a spike in December as the sales tax holiday continued to impact the data and will keep doing so

for the next couple of months, noted the bank.

The drop in volumes suggests spending will weigh on real gross domestic product growth for January when those figures are released on Friday, stated BMO.

Still, the bank is expecting tariff front-loading to drive a pickup in activity. United States tariffs will start to hit economic growth at the end of Q1 and into Q2, with sentiment surveys

suggesting spending could pull back sharply.

The preliminary estimate for February points to a 0.4% month-over-month decline in nominal terms, indicating another roughly 1% drop for volumes as the tax holiday ended mid-month.

The coming months will see tariff-driven sentiment and the removal of the carbon tax adding some noise, pointed out BMO. However, on net, the bank forecasts consumer spending to contract in Q2.