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Canada's inflation rate cools to just 0.1% annual pace in July

Canada's inflation rate slowed down to increase by just 0.1 per cent in the year up to July, as lower prices for gasoline and air travel continue to drag the number lower.

Inflation rate turned negative in April and May before rebounding in June, then slowing down again in July

The price of fuel and the price of flying were two of the biggest contributors to Canada's inflation rate falling to just 0.1 per cent in July. (Andre Coelho/Bloomberg)

Canada's inflation rate has slowed, increasing by just 0.1 per cent in the year up to July, as lower prices for gasoline and air travel continue to drag the number lower.

Statistics Canada said Wednesday that gasoline prices plummeted compared to a year earlier for the fifth month in a row in July, down 14.9 per cent from where they were in July 2019.

"Pump prices have since eased and have actually pulled back so far in August, so headline trends will likely remain modest next month as well," Bank of Montreal economist Doug Porter said.

The data agency says that if gasoline were stripped out of its calculations, the annual inflation rate would have been 0.7 per cent in July. That's the same as June's level. Canada's inflation rate turned negative for the first time in almost a decade in April and May, as COVID-19 walloped Canada's economy.

Those figures are all well below the range that the Bank of Canada likes to see when setting its benchmark interest rate. The bank targets inflation between one and three per cent. When inflation is below that, the bank tends to cut rates to stimulate the economy. When it's above, it tends to raise rates to slow things down.

Other soft spots

Gasoline was the biggest factor in the slowdown but not the only one.

Tickets for seats on airplanes were down 8.6 per cent in July compared to a year earlier, as COVID-19 wreaked havoc on travel demand. That's the first decline in air travel seen since the price of oil plunged in late 2015, and it wasn't the only part of travel that got cheaper.

The price of accommodation such as hotels fell by 27 per cent, Statistics Canada said.

Economist Anna Feng with the Conference Board of Canada says even as COVID-19 persists, she expects the inflation rate to inch higher over time as businesses pass the costs of COVID-related precautions on to their customers more and more.

"Despite weak inflation in July, we expect inflation to accelerate in the near term as COVID-19 weighs on business' operating costs, which will eventually lead to higher prices for consumers," she said.

ABOUT THE AUTHOR

Pete Evans

Senior Writer, CBCNews.ca

Pete Evans is the senior business writer for CBCNews.ca. Prior to coming to the CBC, his work has appeared in the Globe & Mail, the Financial Post, the Toronto Star, Canadian Business Magazine and — believe it or not — Circuits Assembly Magazine. Twitter: @p_evans Email: pete.evans@cbc.ca Secure PGP: https://secure.cbc.ca/public-key/Pete-Evans-pub.asc

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