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Canada inflation eases to 7.6% in July, but analysts eye oversized rate hike

Kitco News

OTTAWA, Aug 16 (Reuters) - Canada's inflation rate eased slightly in July, as lower gasoline prices outweighed fast-rising food prices, official data showed on Tuesday, but economists said hot core measures suggest another outsized interest rate hike is still to come.

Canadian inflation slowed to 7.6% in July, matching analyst forecasts and down from 8.1% in June, Statistics Canada data showed. On a month-over-month basis, the index rose 0.1%, again matching forecasts.

"Canadian's looking at today's consumer price data will be breathing a sigh of relief," said Royce Mendes, head of Macro Strategy at Desjardins Group, in a note. "But this is no time to get complacent."

Mendes noted gasoline prices, up 35.6% in July versus 54.6% in June did much to blunt annual price acceleration, with food prices and demand-driven prices, such as flights and hotel rooms, still gaining speed.

CPI common, which the central bank says is the best gauge of the economy's performance, hit 5.5% and June's number was revised sharply higher to 5.3%. CPI median edged up to 5.0% in July, while CPI trim eased slightly to 5.4%.

The average of those three preferred measures was at a record high, suggesting the economy would face price pressures for months to come, said Jay Zhao-Murray, market analyst at Monex Canada, boosting the case for another oversized interest rate hike in September.

"The good headline, bad story means that on the margin, this report makes a 75-bp (basis point) hike from the Bank of Canada more likely," Zhao-Murray said. "It indicates that more demand destruction is needed to really tamp down inflation."

Hot inflation prompted the Bank of Canada last month to hike interest rates by a surprise 100 basis points. Inflation has been above the central bank's 1-3% control range since April 2021. read more

The Canadian dollar was up 0.2% at 1.2882 to the greenback, or 77.63 U.S. cents, after the data.

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