Canadian inflation holds steady at 2.0% in July as cost of telecoms services fall

By Kelsey Johnson

OTTAWA (Reuters) - Canada's annual inflation rate held steady in July at 2.0% because of lower costs for services, including telecoms, that were offset by higher prices for durable goods, Statistics Canada said on Wednesday.

Analysts in a Reuters poll had forecast an inflation rate of 1.7%. Canada's inflation rate in June was 2.0%. The Canadian dollar strengthened to C$1.3265, or 75.39 cents U.S.

Canadian consumers paid less for telephone services in July following a industry-wide shift in how prices are set for cellular plans. At the same time, the price of smartphones and tablets rose 42.5% month-over-month following a reduction in subsidies for wireless devices, Statistics Canada said.

Canadian cellphone bills are expected to be a common issue for all three of Canada's major political parties in the upcoming Oct. 21 federal election, where Prime Minister Justin Trudeau is facing tight competition from his opponent Conservative Party Leader Andrew Scheer.

The Bank of Canada is set to release its next interest rate decision on Sept. 4. The bank has held interest rates steady since October 2018 and is not expected to move for the rest of the year.

"The picture hasn't changed a lot," Nathan Janzen, a senior economist at Royal Bank of Canada, told Reuters.

"The economic data lately has been pretty strong and with inflation still running around 2% it's tough for (the Bank of Canada) to justify a move immediately as soon as their next meeting," he said.

Andrew Kelvin, Chief Canada Strategist at TD Securities, agreed. "I don't think this changes anything from the Bank of Canada's perspective," he said.

The Bank of Canada projected in its July update that inflation would dip to around 1.6% in the third quarter because of fluctuating gasoline prices and other temporary factors before returning to around 2.0% in the fourth quarter.

Statistics Canada said on Wednesday gasoline prices fell 6.9% year-over-year in July, following a 9.2% decline in June, thanks to tighter supply in the United States because of a refinery closure.

Meanwhile, the price of fresh vegetables posted a double-digit increase for the 10th straight month, rising 18.9% in July, while the price of air transportation rose 4.6%.

CPI common, which the central bank says is the best gauge of the economy's underperformance, rose slightly in July to 1.9% - coming in above analyst projections of 1.8%.

CPI median, which shows the median inflation rate across CPI components, and CPI trim, which excludes upside and downside outliers, were 2.1%.

(Reporting by Kelsey Johnson, Additional reporting by Moira Warburton and Levent Uslu in Toronto; Editing by Dale Smith, Nick Zieminski and David Gregorio)