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Canada's services PMI falls to three-month low in June

Inflation contiunes to raise concerns in Toronto

By Fergal Smith

TORONTO (Reuters) - Canada's services economy moved back into contraction in June as a decline in new business weighed on the sector's performance even as inflation pressures cooled, S&P Global Canada services PMI data showed on Thursday.

The headline business activity index fell to 47.1 from 51.1 in May, posting its lowest level since March.

A reading below 50 signals deterioration in activity. The reading for May was the first time in a year that the index had been above the 50 threshold.

"Following a return to growth in May, Canada's services economy slipped back into the moribund trend that has so characterized its performance in the post-pandemic period," Paul Smith, economics director at S&P Global Market Intelligence, said in a statement.

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"Activity and new business both fell at solid rates, amid reports of weak market demand."

The new business index dropped below the 50.0 no-change mark for the first time in three months, falling to 47.9 from 51.8 in May, while the measure of outstanding business was at 45.1, its lowest level since December 2020, as firms comfortably managed their workloads.

One bit of "good news" in the data was a slowdown in both input and output price inflation, which could contribute to the Bank of Canada's confidence that inflation pressures are contained, Smith said.

Last month, the BoC became the first G7 central bank to begin cutting interest rates.

The prices charged index fell to 50.9 last month from 55.4 in May and the measure of input prices was at 56.2, down from 60.0, marking its lowest level since February 2021.

The S&P Global Canada Composite PMI Output Index, which captures manufacturing as well as service sector activity, also slipped back into contraction in June, falling to 47.5 from 50.6 in May.

Data on Monday showed that Canada's manufacturing PMI was 49.3 last month, matching the level posted in May.

(Reporting by Fergal Smith; Editing by Paul Simao)