Inflation in Canada Unexpectedly Falls Back to Near Zero

(Bloomberg) -- Price pressure in Canada returned to almost zero in July.

The consumer price index increased only 0.1% from the same month a year earlier, Statistics Canada reported Wednesday from Ottawa. That’s a reversal from last month when inflation turned positive on higher gas, food and shelter prices. On a monthly basis, prices were flat, and seasonally adjusted actually fell 0.1%.

Core inflation readings -- seen as a better measure of underlying price pressure -- ticked down to 1.63%, from 1.7% a month earlier.

The worse-than-expected numbers suggest inflationary pressures remain muted in the aftermath of the pandemic, even as more businesses re-open. Policy makers have warned it may take years for the economy to return to full capacity and for inflation to get back to 2%.

“Inflation took a big step back in July, reflecting what is likely to be a long and winding road back to the Bank of Canada’s target,” wrote CIBC economist Royce Mendes in a note to investors.

Economists in a Bloomberg survey predicted 0.5% for annual inflation and 0.4% for monthly.

Declines in air transportation prices were a major downward contributer to the headline inflation figure. Airlines were offering various incentives to promote travel such as reduced fees, discounts and promotions, Statistics Canada said.

The Canadian currency initially pared gains on the report before rebounding. It was trading 0.2% higher at C$1.3140 against its U.S. counterpart at 9:16 a.m. Toronto time.

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