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

Canada's inflation rate has slowed, increasingby just 0.1 per cent in the year up to July, as lower prices for gasoline and air travel continueto 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 slowdownbut not the only one.

Tickets for seats on airplanes were down8.6 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 Fengwith 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.