By Robb M. Stewart


OTTAWA--Canadians are paying more but buying less as the surge in gasoline prices eats up more of their spending, threatening to undercut household consumption that helped power the economy in the early months of the year.

Retail sales in Canada are tracking toward a fourth straight monthly rise. Trade in March increased 0.9% from the previous month, while an advance tally of receipts indicates sales in April were up 0.6%, Statistics Canada said Friday.

Details behind the advance for March, which was slightly stronger than the 0.6% growth expected by economists, were less flattering for the economy.

Trade for the month was driven largely by activity at gas stations and the jump in prices since tensions between the U.S., Israel and Iran escalated. In volume terms, retail sales for March were down 0.7%. And core sales, which strip out gas stations and motor vehicle and parts dealers, dipped 0.1% from a month earlier.

Given gas prices were up again in April, economists estimate sales volumes for the latest month were flat to slightly down. The fade after a stronger start to the year reinforces economist expectations the Bank of Canada has room to continue holding interest rates steady while it monitors both the fallout from the Iran war and the pending renegotiation of the North American trade agreement.

"Our view that policymakers should remain on the sidelines has been marginally strengthened following this print given the weakness in both core retail sales, and the April flash," said Oskar Stone, an associate at Desjardins Capital Markets. "Elevated gasoline prices could chew up even more of household finances, further restraining spending in other categories and possibly offsetting the gains from higher oil prices for other parts in the economy."

Statistics Canada offered no detail with its forecast for April, which was based on the responses of roughly 52% of retailers surveyed and will be revised.

Royal Bank of Canada's tracking of cardholder spending showed bank customers' outlays on gasoline climbed another 8.8% in April, building on the 8.4% increase the month before. Still, the bank's analysis suggests consumers remained resilient in the face of higher gas prices, with cardholder spending not including at gas stations up 1% between March and April.

The national data agency's retail survey for March showed sales were up in four of the nine industry segments it tracks. Compared with a year earlier, sales increased 3.4% but in volume terms edged up just 0.1%.

Sales over the first quarter of the year were up 2.1% for retailers, a seventh consecutive quarterly rise as household consumption continued to be an engine for the economy.

Still, there are doubts about the handoff to the second quarter given headwinds for consumer spending from a weakening labor market, slowing population growth, and now the cost of filling the car. Consumer price inflation has accelerated the past two months, hitting an almost two-year high in April, though that has largely been contained to energy prices.

The biggest driver of sales in March came from a 12.4% monthly jump in trade at gas and fuel outlets, though the volume of sales for the segment fell 1.9% in March.

Sales at motor vehicle and parts dealers fell 0.5% in March, with lower sales at used car dealers leading the drop. Canadians also spent less on building material and garden equipment and at general merchandise retailers. However, sales at supermarkets and other grocery stores were up for the month.

"The war-driven price shock is leaving a mark on Canadian consumers, who have otherwise held in there against elevated economic uncertainty and outright population declines," said Shelly Kaushik, economist at Bank of Montreal Capital Markets. "The details of the March figures suggest consumer spending will remain under pressure until energy prices normalize."


Write to Robb M. Stewart at robb.stewart@wsj.com


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