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UPDATE 2-Canada's annual inflation rate slows but remains above Bank of Canada target

·2 min read

(Recasts lead, adds analyst comment, details of release)

By David Ljunggren

OTTAWA, July 28 (Reuters) - Canada's inflation rate slowed more than expected in June from a decade-high in May as food, transport and clothing costs eased, data showed on Wednesday, but some analysts said it might be only a brief reprieve.

Inflation eased to 3.1% in June from 3.6% in May, Statistics Canada said, lower than the 3.2% median forecast of analysts polled by Reuters.

Earlier this month, the Bank of Canada said inflation was expected to remain at or above 3% - the top of the bank's 1%-3% control range - through the rest of 2021, easing back to the 2% target by 2022.

"I think (the Bank of Canada) will be relieved," said Jimmy Jean, chief economist at Desjardins Group. "They're not losing a handle on inflation."

Prices rose at a slower pace in four of the eight major components on a year-over-year basis in June, Statscan said.

Beef prices fell by 11.0% compared to June 2020 while gas prices rose by 32.0% year-on-year compared to 43.4% in May.

The CPI common measure, which the Bank of Canada says is the best gauge of the economy's underperformance, dipped to 1.7% from 1.8%.

The June data set was the first to incorporate new values for the overall basket that give more weighting for shelter to reflect soaring housing prices.

Some analysts said price pressure was likely to pick up in the near future.

"Housing is still a powerful driver for inflation and we know that, because of the weighting changes, housing is actually going to weigh even more heavily on inflation in the coming months," said Doug Porter, chief economist at BMO Capital Markets.

"We continue to expect inflation to rebound back toward 4% soon," Stephen Brown, senior economist at Capital Economics, said in a note.

The Canadian dollar gave back some of its gains after the data, to trade 0.2% higher at 1.2580 to the greenback, or 79.49 U.S. cents.

(Additional reporting by Fergal Smith and Nichola Saminather in Toronto and and Steve Scherer in Ottawa; Editing by Jonathan Oatis, Alexandra Hudson)

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