Inflation expected to drop in July, giving Bank of Canada more ammo to cut at its next meeting

financialpost.com:

The Bank of Canada is expected to cut its policy rate at its next meeting in September, something that will become even more likely if economists’ predictions that inflation continued to cool last month come true.

Statistics Canada is set to release its consumer price index (CPI) data for July on Tuesday.

Inflation decelerated in June to 2.7 per cent annually, with the drop attributed to a slowdown in gasoline prices. Despite an uptick to 2.9 per cent in May, inflation has followed a cooling trend and has remained within the target range of one to three per cent since the beginning of this year.

The Bank of Canada expects core inflation, the measures it prefers to look at when making its policy decisions, to fall to 2.5 per cent in the second half of this year.

Except for Royal Bank of Canada, economists predict Tuesday’s reading will show inflation fell in July. However, there is a lack of consensus on the exact number.

Toronto-Dominion Bank puts annual inflation at 2.4 per cent in July. Fédération des caisses Desjardins du Québec and the Canadian Imperial Bank of Commerce put headline inflation at 2.5 per cent and the Bank of Montreal forecasts it only fell to 2.6 per cent last month.

“The share of CPI components growing above three per cent is closing in on normal levels, which is encouraging, and should help the Bank of Canada’s preferred measures of underlying inflation make further progress,” Jimmy Jean, chief economist at Desjardins, said.

Andrew Grantham, a senior economist at CIBC, said there will be monthly price increases, but those will be offset by the absence of higher gasoline prices from a year ago.

“We expect a 0.4 per cent increase in prices on the month, which would translate into a 0.3 per cent gain