Volkswacht Bodensee - Inflation slows again in Canada to 2%

The easing was due in part to lower gas prices, down 5.1 percent year-on-year after a 1.9 percent increase in July, Statistics Canada said in a statement.

But prices of clothes and shoes also dropped month-on-month -- a surprise for August when students in Canada are preparing to return to school, fueling demand and usually sending prices up.

"A drop in prices in the month of August has not been observed since 1971," the government agency said.

Rent and mortgage interest costs are still the top contributors to the overall increase in prices, it said.

In recent months, the Bank of Canada has lowered its key interest rate three times, from five percent to the current 4.25 percent.

Inflation has fallen from 2.7 percent in June and 2.5 to July to two percent in August.

"The bottom line then is that inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate," CIBC economist Andrew Grantham said.

For RBC economists Nathan Janzen and Abbey Xum, the inflation data marks a "clear" path to further interest rate cuts.

"We continue to expect a gradual rate cutting path (25 basis points per meeting) down to a 3% overnight rate," they said in a note.

B.Wyler--VB