By Promit Mukherjee
OTTAWA (Reuters) – Canada’s annual inflation rate eased to 1.7% in July from 1.9% in the prior month as lower year-on-year gasoline prices kept the consumer price index low, but core measures of inflation stayed sticky, data showed on Tuesday.
Analysts polled by Reuters had forecast the annual inflation rate at 1.8% and the monthly inflation rate at 0.3%. The CPI increased by 0.3% in July from 0.1% in June on a monthly basis, Statistics Canada said.
Gasoline prices dropped by 16.1% on a yearly basis in July, following a 13.4% decline in June. On a monthly basis the price of he fuel dropped as geopolitical tensions eased and crude oil producing nations increased output.
The elimination of carbon levy on purchase of petrol has helped bring down the cost of the fuel on a yearly basis and is expected to maintain a downward pressure on the CPI basket for another eight months.
This has helped the overall consumer price index to clock a rate below the mid-point of the Bank of Canada’s 1% to 3% target range, even as there are signs of rising prices of food.
Excluding gasoline, the CPI rose 2.5% in July, Statscan said.
The main drivers of the increase in costs were rise in food prices and shelter costs, StatsCan said. Food prices, which contributes close to 17% to the overall CPI basket, rose by 3.3% in July from 2.9% in June.
Shelter costs, the biggest component of the CPI basket, rose 3% in July from 2.9% in June, marking the first increase since February last year. This was driven by a smaller decline in cost of natural gas and rise in rents by 5.1%.
Core measures of inflation, which are closely tracked by the Bank of Canada have remained resilient and hovered around the top of the bank’s preferred range of CPI.
One of the core measures the CPI-median – or the centermost component of the CPI basket when arranged in an order of increasing prices – was at 3.1% in July, from 3% in June. The CPI-trim, which excludes the most extreme price changes, was unchanged at 3%.
The share of the CPI basket which is above 3% continues to be elevated at over 37%, data showed.
Money markets are betting the odds of a rate cut on Sept. 17 at 32% after the bank has stayed put at 2.75% for its last three rate decision meetings.
The Canadian dollar weakened and was trading down 0.11% after the inflation data to 1.3817 to the U.S. dollar, or 72.37 U.S. cents. Two-year government bond yields were down 0.3 basis points to 2.735%.
(Reporting by Promit Mukherjee; Editing by Dale Smith)
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