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INSTANT VIEW-Canada's annual inflation rate dips to 0.1% in July

TORONTO, Aug 19 (Reuters) - Canada’s annual inflation rate dipped to 0.1% year-over-year from a 0.7% increase in June on a broad-based slowdown in price growth, spanning both goods and services, Statistics Canada said on Wednesday.

STORIES:

Market reaction: CAD/

Link: here

COMMENTARY

DEREK HOLT, VICE PRESIDENT OF CAPITAL MARKETS ECONOMICS AT SCOTIABANK

“It puts to rest any concern that the downward pressure on inflation on core measures had been interrupted in the prior month. So it resumed the downward decline and so at the margin it will reinforce the bank’s dovishness.”

DOUG PORTER, CHIEF ECONOMIST AT BMO CAPITAL MARKETS:

“There was obviously a downside surprise, especially on the headline inflation. Even one of the measures of core inflation was quite moderate.

“The very interesting story here is the difference between Canada and the U.S. They haven’t been exactly aligned for much of this year but the difference in July was quite stark. What stands out is that year on year, inflation is almost zero in Canada and almost 1% in the U.S.

“In terms of policy, looking at the very big picture here, I don’t think this will be a complete shock to the Bank of Canada but it does drumroll the fact that that rates are going absolutely nowhere for quite a long period of in Canada. Any talk of upside risk for inflation has obviously been put on the back burner.”

MARK CHANDLER, HEAD OF CANADIAN FIXED INCOME AND CURRENCY STRATEGY, RBC CAPITAL MARKETS

“The numbers fell flat of expectations ... it’s something that we had expected to see with the signs of the output gap as it stands right now. But to be honest, given the gyrations, I don’t think that it’s going to have any influence at all on Bank of Canada policy.

“As well, if you look at activity indicators, like wholesale sales today, we are seeing a significant bounce as we head into Q3. It’s very much along the lines of what the Bank of Canada has laid out, that is, strong rebound in Q3, CPI settling lower, at the lower end definitely of the range they had. There’s no reason at all to think they’d change their policy.”

ROYCE MENDES, SENIOR ECONOMIST AT CIBC CAPITAL MARKETS

“Inflation took a big step back in July, reflecting what is likely to be a long and winding road back to the Bank of Canada’s target.”

“While gasoline prices supported overall gains, transportation was the source of a lot of the weakness. Prices declined for air transportation and traveler accommodation as lower prices were being offered as incentives for travel. Other categories also showed weakness in July, with food, shelter and recreation all posting little-to-no increases.” (Reporting by Fergal Smith and Nichola Saminather in Toronto Editing by David Ljunggren)

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