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Statscan says Canada’s annual rate of inflation fell to 1.3 per cent in July

Matthew Sherwood/The Globe and Mail

Canadian retail sales posted a surprise decline and inflation slowed, signs of fading consumer spending that had been propping up the economy.

Retail sales fell 0.1 per cent in Jun compared with economist forecasts for a gain of 0.5 per cent, Statistics Canada said Friday from Ottawa. In a separate report, the agency said annual inflation slowed to 1.3 per cent in July, from 1.5 per cent the prior month. Economists surveyed by Bloomberg had forecast annual inflation of 1.4 per cent.

Slack in the world's 11th largest economy has kept inflation below the central bank's 2 per cent target for almost two years, and the decline in retail sales fuels worries that consumer fatigue may have added to the economy's woes in the second quarter.

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Output was already on track to decline in the second quarter as wildfires in Alberta shrank oil production, leaving consumer spending as one of the few sources of growth.

"The retail sales number is a bit disappointing," said Andrew Kelvin, fixed income strategist at Toronto-Dominion Bank. There was hope "for a bit more bounce back following the very poor economic data in May."

Canada's dollar weakened 0.7 per cent to C$1.2870 per U.S. dollar at 8:40 a.m. Toronto time, breaking a nine-day rally.

Retail sales fell in seven of 11 categories making up 54 per cent of the industry, Statistics Canada said.

Cheaper Gas Cheaper energy is a big part of the inflation picture, the data show. Gasoline prices dropped 14 per cent in July from a year ago, compared with a June decline of 8.5 per cent, Statistics Canada said. Excluding gasoline, the inflation rate was unchanged at 1.9 per cent.

The core inflation rate that excludes eight volatile products remained at 2.1 per cent for a third month. Economists surveyed by Bloomberg forecast a core rate of 2.1 per cent.

On a monthly basis, prices fell 0.2 per cent in July from June. Core prices were unchanged during the month. Economists surveyed by Bloomberg predicted that both measures would be unchanged.

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