REFILE-UPDATE 2-Canadian inflation softer than expected in July

Fri Aug 22, 2014 9:54am EDT
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(Adds dropped word "falling" in sixth paragraph quote.)

By Randall Palmer

OTTAWA Aug 22 (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.   Continued...