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Inflation slows to 2.1% in July as gasoline prices fall

A customer fills up at a gas station in downtown Toronto.

Fred Lum/Fred Lum/The Globe and Mail

Canada's inflation rate slowed for the first time in five months in July as gasoline prices fell.

The consumer price index rose 2.1 per cent in July from a year ago following June's 2.4 per cent pace, Statistics Canada said today from Ottawa. Economists surveyed by Bloomberg News forecast a 2.2 per cent pace, according to the median of 20 responses.

Bank of Canada Governor Stephen Poloz, who has kept the central bank's benchmark rate on overnight loans between commercial banks unchanged at 1 per cent since taking the post last year, has said that quickening inflation was caused by one– time gains in energy and import prices, not changes in economic fundamentals, hinting it's not a concern for policy makers.

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The report "does give some wiggle room to the Bank of Canada to continue to sound fairly neutral," said Camilla Sutton, chief currency strategist at Bank of Nova Scotia in Toronto. The central bank's next interest rate announcement is scheduled for Sept. 3.

Canada's inflation rate had been accelerating since touching a 2014-low of 1.1 per cent in February. In a report last month, the central bank cited temporary forces such as gains in energy costs and tighter meat supplies, and claimed those pressures are being balanced by increased retail competition and slack in the economy.

Slower Inflation The Bank of Canada forecasts inflation will slow below 2 per cent next year before rising again to its target in 2016. The central bank is mandated to keep consumer-price increases in the middle of a 1 per cent to 3 per cent band.

The Canadian dollar was little changed after the report, trading at C$1.0946 per U.S. dollar as of 8:44 a.m. in Toronto.

The core inflation rate, which excludes eight volatile products, decreased to 1.7 per cent in June after a gain of 1.8 per cent the prior month. Economists surveyed by Bloomberg News forecast a 1.9 per cent rate for core.

Total inflation fell 0.2 per cent in July from June and the core rate was down 0.1 per cent. Gasoline prices fell 1.9 per cent last month, helping to lead a 0.6 per cent drop in energy costs.

Other items recording lower prices over the month included passenger vehicles, which were down 2 per cent, and clothing and footwear, which fell 1 per cent.

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Economists surveyed by Bloomberg had predicted that prices would fall 0.1 per cent in July from June, and the core rate would rise 0.1 per cent.

On a seasonally adjusted basis, Canada's headline consumer price index fell 0.1 per cent in July, the first decline for that measure since October. The seasonally adjusted core rate was up 0.1 per cent.

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