OTTAWA, Aug 20 (Reuters) - Canada's annual inflation rate cooled to a 40-month low of 2.5% in July, matching forecasts, and core inflation measures eased as well, data showed on Tuesday, keeping the Bank of Canada on track to cut interest rates again in September.
Analysts polled by Reuters had forecast inflation to cool to 2.5% from 2.7% in June. The consumer price index was up 0.4% on a monthly basis, also in line with forecasts, Statistics Canada data showed.
The slowdown in headline inflation in July was largely driven by lower prices for travel tours, passenger vehicles and electricity, the statistics agency said.
The inflation rate is now the closest to the Canadian central bank's 2% target since 2.2% inflation in March 2021, when prices were beginning to rise after about a year into the coronavirus pandemic.
The easing should keep the Bank of Canada on track to lower borrowing costs again next month. The Bank of Canada has decided to cut its policy rate at two consecutive policy-setting meetings and money markets expect another 25 basis point cut at the bank's next rate announcement on Sept. 4.
After lowering its key overnight rate by 25 basis points to 4.5% on July 24, the BoC indicated it was increasingly concerned about the chances of weaker-than-expected growth.
Two of the Bank of Canada's preferred measures of underlying inflation - CPI-median and CPI-trim - eased to their slowest pace since April 2021. CPI-median slowed to 2.4% from 2.6% in June, while CPI-trim cooled to 2.7% from 2.8%.
Among the main drivers of deceleration in inflation, prices for travel tours fell 2.8% on an annual basis in July after a 7.4% increase in the month earlier. Passenger vehicles also got cheaper in the month, as prices fell at the fastest rate since November 2012.
Goods prices rose 0.3% annually - same as June - while services inflation slowed to 4.4% from 4.8%.
Reporting by Ismail Shakil in Ottawa; Editing by Dale Smith
