The headline sales increase in August was slightly ahead of the average analyst estimate of 2.0%. Sales at clothing and clothing accessory stores rose 3.9% to reach their highest level on record, Statistics Canada said.
Despite the strong August numbers, the flash estimate for September suggested challenges ahead for Canada's economy due to supply chain bottlenecks, said analysts.
"Statistics Canada's flash estimate for September is suggesting that retail sales declined 1.9%. That's likely at least in part due to a further pullback in unit auto sales amidst the supply crunch," said Royce Mendes, senior economist at CIBC Capital Markets, in a note.
Sales at motor vehicle and parts dealers were flat in August, amid lower inventories due to the global semiconductor chip shortage, Statscan said.
Statscan said 0.6% of retailers were closed at some point in August, compared with approximately 0.5% in July. It also noted the share of retail sales accounted for by electronic commerce rose to 4.9% in August from 4.6% in July.
The Canadian dollar was trading 0.2% higher at 1.2335 to the greenback, or 81.07 U.S. cents.
(Reporting by Julie Gordon in Ottawa; Editing by Chizu Nomiyama)
By Julie Gordon