OTTAWA, July 28 (Reuters) – Canada’s inflation rate slowed more than expected in June, after hitting a decade-long high in May as the costs of food, transportation and clothing fell, according to data released Wednesday, but some analysts felt it might only be a brief reprieve.
Inflation fell to 3.1% in June from 3.6% in May, according to Statistics Canada, below the median forecast of 3.2% by analysts polled by Reuters.
Earlier this month, the Bank of Canada said inflation is expected to stay at or above 3% – the top of the bank’s 1% to 3% control range – until the end of 2021 , returning to the objective of 2% by 2022. read more
“I think (the Bank of Canada) will be relieved,” said Jimmy Jean, chief economist at Desjardins Group. “They are not losing control of inflation.”
Prices rose at a slower pace in four of the eight major components year over year in June, Statscan said.
Beef prices are down 11.0% from June 2020 while gas prices are up 32.0% year on year from 43.4% in May.
The common measure of the CPI, which the Bank of Canada says is the best indicator of the economy’s underperformance, fell from 1.8% to 1.7%.
The June dataset was the first to incorporate new values for the aggregate basket that put more weight on housing to reflect soaring house prices. Read more
Some analysts have said price pressure is likely to intensify in the near future.
“Housing remains a powerful driver of inflation and we know that due to the weighting shifts, housing will actually weigh even more heavily on inflation in the coming months,” said Doug Porter, economist in Head of BMO Capital Markets.
“We continue to expect inflation to rebound to 4% soon,” Stephen Brown, senior economist at Capital Economics, said in a note.
The Canadian dollar gave up some of its gains after the data, to trade up 0.2% to 1.2580 against the greenback, or 79.49 cents US.
Additional reporting by Fergal Smith and Nichola Saminather in Toronto and Steve Scherer in Ottawa; Editing by Jonathan Oatis, Alexandra Hudson
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