Retail sales in Canada rose by 0.5% in April, which was just shy of Statistics Canada’s (StatsCan) estimate of 0.6%. The monthly increase extends a run of monthly gains even as Canadian households face pressure from elevated energy costs and a broader economic slowdown.

While the headline number looks encouraging, much of the recent strength has been driven by higher gasoline prices rather than stronger consumer demand. Core retail sales, which removes sales at gasoline stations and at automotive dealers, declined by 0.7% in April, suggesting Canadians are spending more at the gasoline pump, but pulling back elsewhere.

In volume terms, which adjusts for price changes to show how much people are actually buying, retail sales have been declining in recent months.

Looking ahead, StatsCan estimated that retail sales increased by 1.0% in May.

Canadian households are feeling the impact from higher energy prices and rising inflationary pressures. These figures reinforce a tricky picture for the Bank of Canada (BoC). Slower consumer activity would normally point to reducing interest rates to stimulate spending. However, elevated inflation may limit how low the BoC can take its policy interest rate.

The U.S. Federal Reserve Board (Fed) voted to hold the target range of its federal funds rate steady at 3.50%–3.75% at its June meeting. This was the Fed’s fourth consecutive rate hold as policymakers continue to navigate persistently elevated inflationary pressures.

This was the first meeting of new Fed Chair Kevin Warsh, who removed language from the Fed’s statement that had previously leaned towards future rate cuts.

Fed officials updated their economic projections, raising their outlook for inflation to 3.6% this year. Meanwhile, the Fed lowered its economic growth forecast to 2.2% in 2026. The Fed expects prices to remain higher for longer, while economic growth wanes.

The Fed’s closely watched dot plot now suggests at least one interest rate increase could be up for consideration later this year. However, on balance, Fed officials were divided on the direction of interest rates this year.

The combination of elevated inflationary pressures and softer economic growth puts the Fed in a difficult position. If it raises interest rates to fight inflation, it could slow already soft economic growth. If it holds or cuts interest rates, inflation may stay elevated, which could leave consumers and businesses facing higher prices for longer.

China’s retail sales fell 0.6% year over year in May, which was the first annual decline since December 2022. The decline was bigger than economists had expected.

Big-ticket purchases drove much of the weakness. On a year-over-year basis, automobile sales dropped by 16.1% in May, while home appliances, building materials, furniture and gold all recorded steep declines.

Some categories held up in May. Beverages, medicines and clothing all posted gains, suggesting consumers are still spending on everyday items but cutting back on larger, discretionary purchases.

The broader trend is concerning. May’s decline signals that Chinese consumers are under real pressure. A prolonged slowdown in spending in the world’s second-largest economy can weigh on global economic growth.

The Bank of England (BoE) kept its policy interest rate unchanged at 3.75%. BoE officials agreed it was not prudent to adjust interest rates at this time given the current level of uncertainty stemming from higher energy prices tied to the conflict in the Middle East.

The vote wasn’t unanimous, with two officials pushing for an interest rate increase to 4%, concerned that prolonged energy price pressure could feed through into higher wages and broader price increases across the U.K. economy.

The BoE believes that while energy prices have pulled back, inflation could pick up later this year as earlier cost increases continue filtering through to households and businesses.

U.K. inflation was unchanged at 2.8% in May, which is still above the BoE’s 2% target. Housing services costs moderated amid the energy price cap.

Similar to the Fed, the BoE is in a difficult position with the possibility of inflation rising this year against a backdrop of muted economic activity. The BoE appears willing to adjust monetary policy depending on the path of inflation, the labour market and the economy.