Canadian inflation softer than expected in July

Fri Aug 22, 2014 9:55am EDT
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By Randall Palmer

OTTAWA (Reuters) - Canada's annual inflation rate softened more than expected in July and the core rate unexpectedly fell, Statistics Canada said on Friday, but the surprise decline is not likely to worry the central bank.

The July figure comes after annual inflation rose to a 28-month high in June. Bank of Canada Governor Stephen Poloz shrugged off that surge as temporary.

The annual inflation rate fell to 2.1 percent in July from 2.4 percent in June, a touch above the Bank of Canada's 2 percent target but lower than the 2.2 percent forecast of economists in a Reuters survey.

Annual core inflation, watched carefully by the central bank, drifted farther from its target to 1.7 percent from 1.8 percent. It had been predicted to inch up to 1.9 percent.

"It does support the Bank of Canada's view that you get a little bit of a retrenchment in inflation, so it's kind of transitory," said David Tulk, chief Canada macro strategist at TD Securities. "It gives the Bank of Canada a little bit of reprieve."

"With core at 1.7, you're close enough to the Bank of Canada's target, and you'll get a little bit more of a reprieve in August, just given falling energy prices that month as well."

The Canadian dollar hit a session low of C$1.0982, or 91.06 U.S. cents, immediately after the data before gaining back some ground.

On a month-on-month basis, prices had been expected to retract by 0.1 percent, partly because of cheaper energy, but ended up 0.2 percent lower. Core prices, which strip out volatile items like gasoline and vegetables, showed a 0.1 percent decline instead of an expected 0.1 percent rise.   Continued...

People walk out of a Canadian Tire Store that is located by a Mark's clothing store, which is owned by Canadian Tire Corporation in Toronto, May 8, 2014.  REUTERS/Mark Blinch