Canada inflation rate drops to 2.7%

Canada’s annual inflation rate dipped as expected in July, prompting little excitement from markets waiting for crucial testimony from Bank of Canada governor Mark Carney later on Friday.Carney, who will appear before a parliamentary committee at 10 am (1400 GMT), is expected to cut the central bank’s short-term growth forecast and provide more details about when interest rates might move.Statistics Canada said the annual inflation rate dropped to 2.7 per cent in July from 3.1 per cent in June, in part because the introduction of higher sales taxes in three provinces is no longer included in calculations. Although July marked the 10th straight month that overall inflation has been above the Bank of Canada’s 2 per cent target, the figure was well below the eight-year high of 3.7 per cent recorded in May. Market analysts had forecast the July rate would be 2.8 per cent. “This is basically in line with market expectations, nothing too shocking one way or the other,” said David Tulk, chief Canada macro-strategist at TD Securities. “(It) basically sets the stage for Governor Carney to speak at 10, which I think is going to be the market driver.” The bank signaled on July 19 it was closer to raising rates, although only if the economy continued to advance.   Downbeat data since then strongly suggests there was little if any growth in the second quarter, and markets no longer expect a rate hike in the foreseeable future.“This report at least gives the Bank of Canada some flexibility in being comfortable leaving rates unchanged through the end of the year and into next year,” said Jimmy Jean, economic strategist at Desjardins Capital Markets.After the data Canada’s dollar rose slightly to C$0.9887 to the US dollar, or $1.011 US dollars, up from around C$0.9912 to the US dollar, or $1.0089.The closely watched annual core inflation rate, which excludes prices of some volatile items, rose to 1.6 per cent from 1.3 per cent in June.July’s data strips out the effect of a new sales tax introduced in July 2010 in Ontario and British Columbia. In the same month, Nova Scotia increased its sales tax by two per centage points. From / Gulf Today