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OTTAWA - Retail sales rose a lackadaisical 0.4 per cent in May, mostly because of higher gasoline prices, indicating growing caution among Canadian consumers.

Meanwhile, the number of people receiving Employment Insurance benefits declined in most of the country - but increased by more than half compared with a year ago in the automaking centre of Oshawa, Ont.

Statistics Canada reported Tuesday that retail sales totalled $35.8 billion in May. It was the seventh increase in eight months, but attributable mainly to increased sales at gasoline stations as gasoline prices spiked by 8.8 per cent compared with April.

Excluding the impact of price changes, sales edged up a mere 0.1 per cent.

Sales in the automotive sector, including fuel, rose 1.1 per cent, and retailers of building and outdoor home supplies booked a 0.7 per cent increase.

New car dealers advanced by a modest 0.3 per cent, while sales frayed 0.7 per cent at apparel stores.

Nine of the 10 provinces posted overall increases, led by gains of more than one per cent in Manitoba and Saskatchewan. Saskatchewan led the country with a 1.8 per cent rise, while sales fell 1.2 per cent in Newfoundland and Labrador, the third decline since peaking in January.

The overall national rise of 0.4 per cent was below the expectations of private-sector economists, who generally predicted an increase in line with April's 0.6 per cent gain.

"Note that despite the jump in gasoline prices in the month, service station receipts rose just 2.4 per cent month-over-month, suggesting that drivers really did park it in the face of soaring prices, and helps explain why the overall figures were on the light side of expectations," commented BMO Capital Markets economist Douglas Porter.

"This so-so gain is perfectly consistent with a consumer that is slowly pulling in their horns, but not exactly in full-scale retreat," Porter wrote, adding that "there is little doubt that consumer spending will be much more modest in the second half of the year than it was in the first half."

In the EI statistics, 457,020 Canadians received benefits in May, down by 5,330 or 1.2 per cent from April.

Compared with May 2007, the number of Canadians getting regular benefits was down by 3.2 per cent, with a decline of 2.3 per cent among men and 4.7 per cent among women.

The number of EI recipients dropped by 42.6 per cent from a year earlier in Saskatoon and by 32.9 per cent in Regina, but increased 54.5 per cent in Oshawa.

Elsewhere in the Ontario manufacturing heartland, St. Catharines-Niagara had a 25.8 per cent rise in EI recipients and London had a 19.3 per cent year-over-year increase.

Royal Bank economist Paul Ferley said Tuesday's statistics point to the Bank of Canada holding its policy-setting overnight ready steady at a "still stimulative" three per cent despite inflation worries.

Ferley noted that a strengthening of the econony over the second half of this year "is far from assured given the recent re-emergence of weakness in financial markets and attendant tightening in credit."

09:42ET 22-07-08