Retail sales in Canada rose more than expected in January, but economists were cautious as they noted the gains came as shoppers paid higher prices and not because of increased volumes.

Statistics Canada said Thursday that retail sales for the first month of the year were up one per cent to $38.9 billion, after a drop in December, spurred by higher sales at motor vehicle and parts dealers.

The consensus expectation by economists had been for a gain of 0.9 per cent.

"January retail sales, both on the headline and excluding autos, were above expectations," David Watt, chief economist at HSBC Bank Canada, wrote in a report.

"However, downward revisions to prior readings and a flat month in real terms erase much of the optimism from the report."

Watt noted that while consumer confidence jumped in the month, it did not translate into spending.

"The headline retail sales number hinted at a firm backdrop for Canadian consumers to start 2013. However, the flat real reading points toward a more cautious interpretation of the report," he said.

The January retail sales follows a disappointing holiday shopping season and a weak end to 2012 for the economy in general.

Real domestic product output — which adjusts for inflation — crept ahead by a meagre 0.6 per cent in the fourth quarter, following 0.7 per cent in the third. For the year, the economy grew by an average of 1.8 per cent.

Statistics Canada reported Thursday that gains were reported in seven of 11 retailing subsectors, representing 52 per cent of all retail trade.

'All of the gains were due to higher prices, leaving volumes flat.'—Benjamin Reitzes, senior economist, Bank of Montreal

Sales at motor vehicle and parts dealers were up 2.8 per cent in January, partially offsetting the 6.5 per cent drop in December. Gasoline stations had the biggest drop in January, the third month in a row their sales have decreased.

Bank of Montreal senior economist Benjamin Reitzes noted that initial reports indicate February auto sales declined, suggesting the sector's rebound will likely not continue down the road.

"While the headline certainly looks good, all of the gains were due to higher prices, leaving volumes flat," Reitzes wrote in a report.

"Combined with the decent gain in wholesale volumes and the small drop in manufacturing, January GDP is on pace for a modest 0.1 per cent gain."

Retail sales rose in six provinces in January, with Quebec reporting the largest increase in dollar terms, at 2.1 per cent.

In addition to the retail sales report, Statistics Canada also reported Thursday that the number of people receiving regular employment insurance benefits edged down 1.6 per cent in January to 531,100.

However, the number of initial and renewal claims rose by 3.8 per cent to 238,500 in January.

The agency said most provinces had fewer beneficiaries in January, with the largest percentage decreases occurring in Newfoundland and Labrador, New Brunswick, Alberta and Manitoba.

The number of beneficiaries decreased slightly in Prince Edward Island, Quebec and Ontario, while there was no change in British Columbia, Nova Scotia and Saskatchewan.