Economists say they found some encouraging signs in the latest inflation numbers but some warn the Bank of Canada might need a bit more convincing to cut its key interest rate next month.The annual rate of inflation fell to 1.7 per cent in July, Statistics Canada said on Aug. 19, down from 1.9 per cent in June. The reading was a tenth of a percentage point below most economists’ expectations.A 16.1 per cent decline year-over-year in gas prices tied mainly to the removal of the consumer carbon price earlier this year fuelled the drop.BMO chief economist Doug Porter said in an interview that the July consumer price index was a “relatively favourable report” despite some stubbornness at the grocery store and in housing.July’s consumer price index marks the first of two looks at inflation that the Bank of Canada will get before its next interest rate decision on Sept. 17. The central bank held its policy rate steady at 2.75 per cent in July.The Bank of Canada has been looking for signs of how Canada’s tariff dispute is affecting inflation, and is particularly concerned with trends in core inflation that strip out influences from tax changes and other volatile inputs.Statistics Canada said the Bank of Canada’s preferred measures of core inflation held around three per cent in July.Porter pointed out that another measure of core inflation that strips out influences from food and energy was lower in July, around 2.6 per cent.Looking at those readings, he said the July CPI report “slightly turned the dial” toward a rate cut in September, aligning with BMO’s expectations.Porter said there are some hints that Canada’s tariff dispute with the United States is a factor keeping food inflation elevated, but he stopped short of blaming it for pain at the grocery store.“I think the bigger story is coffee prices, chocolate prices and beef prices, and those aren’t really a tariff story. Those are more climate issues,” he said.Tariffs from the U.S. are driving a bit of “stickiness” in durable goods inflation, Porter noted, particularly in motor vehicles.In addition to duties placed on some Canadian inputs, U.S. tariffs on vehicles from around the world are driving some “spillover” effects on inflation in Canada, he said.“The trade war has had an effect on auto prices and autos are a big share of the CPI,” he said. (ICE TORONTO)

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