Analysis-Is Canadian core inflation about to crack? July data could offer hope

investing.com:

By Fergal Smith

TORONTO (Reuters) — The Bank of Canada's most favored measures of core inflation are likely to slow in July for the first time in 10 months as base effects work in their favor, a milestone that could sway the bank to leave rates on hold at its next policy decision.

In tracking core inflation, the BoC has been particularly focused on the annualized three-month rates of the weighted median and the trimmed mean, which filter out components with extreme price movements and are more timely than the year-over-year rates that are typically observed.

The average of those two measures would drop in July below the 3.5% to 4% range it has been stuck in since September, so long as the monthly increases are not too hot — above 0.3%, for example — Reuters calculations show.

The monthly increases for both measures have been 0.3% or less in seven of the last eight months. The exception was April. Helpfully, its heated readings will drop out of three-month calculations in July.

Such an outcome could see the BoC returning to the sidelines at its next interest rate announcement on Sept. 6, said Benjamin Reitzes, Canadian rates & macro strategist at BMO Capital Markets.

«It's a milestone along that path (of lowering inflation),» Reitzes said. «At that point you are probably more willing to let prior rate moves have their full effect and not want to push things that much further.»

While data last week showed headline inflation slowing in June to an annual rate of 2.8%, within the BoC's 1% to 3% control range for the first time in over two years, an easing of underlying price pressures is required in order for the slowdown in inflation to persist, say economists.

Holding rates steady in September would not guarantee the