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Economy Canada’s annual inflation rate in June drops to 2 per cent on lower gas prices

Lower energy prices helped push down Canada’s annual inflation rate in June to 2 per cent from 2.4 per cent in May, Statistics Canada said on Wednesday, a week after the Bank of Canada predicted the indicator would start falling.

The rate matched the forecast by analysts in a Reuters poll. June marked the third month in a row that the rate has met or exceeded the Bank of Canada’s 2-per-cent target for inflation.

The Bank of Canada has held interest rates steady since October, 2018, as it watches how the domestic economy recovers from a recent slowdown. The bank is not expected to move again for the rest of the year

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The central bank last week projected the overall inflation rate would dip to around 1.6 per cent in the third quarter because of the dynamics of gasoline prices and other temporary factors before recovering to around 2 per cent in the fourth quarter.

“Inflation is obviously neither too hot or too cold at this point. It’s almost a non-factor for the bank’s next move,” said Doug Porter, chief economist at BMO Nesbitt Burns Inc.

“In other words, it doesn’t really constrain them one way or the other,” he said in a phone interview.

The Canadian dollar edged lower, touching $1.3074 to the U.S. dollar, or 76.49 US cents.

Although two of the Bank of Canada’s measures of core inflation remained above 2 per cent, CPI common – which the central bank says is the best gauge of the economy’s underperformance – was unchanged at 1.8 per cent.

Energy prices fell 4.1 per cent year-over-year in June as Canadians paid less for gasoline and other fuels. Oil prices dipped amid rising U.S. fuel inventories and the elimination of carbon pricing in Alberta.

But consumers are paying more for other products – notably fresh vegetables, where prices jumped 17.3 per cent, the largest increase seen since January, 2016. The rise, which follows a similar gain in May, was owing in part to inclement weather in agricultural regions.

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“The drop in headline inflation isn’t going to be the cause of any concern at the Bank of Canada,” said Robert Both, macro strategist at TD Securities.

Separately, Statscan said factory sales rose by 1.6 per cent in May, the most in a year, boosted by strong demand for motor vehicles and parts after auto plants that had temporarily shut down resumed production.

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