Today’s Consumer Price Index showed rapidly weakening headline inflation, but stubborn core prices. Economists agree however that the core rate isn’t strong enough to stand in the way of more cuts to interest rates.

Canadian consumer prices fell a greater-than-expected 0.3% in July. A sharp pullback in gasoline prices, and a decline in the cost of automobiles, helped drop headline inflation to 2.6%.

Core prices remain strong though, rising to 2.2% from 2% in June. Core inflation according to the Bank’s new CPIX also rose to 2.4% from 2.3%.

TD Economics says, “Canada’s energy-price bloated inflation balloon is finally starting to burst, with the headline rate of inflation losing altitude in July just as fast as it had taken flight earlier in the year.” It notes that the core rate strength is not too worrying, with most of it coming in clothing and footwear, along with temporary hikes in accommodation costs and transportation. It says it won’t be long before core inflation subsides below the Bank of Canada’s 22% target.

“With the Canadian economy running well below its long-term cruising speed — a fact which has been glaringly obvious in the most recent flurry of economic reports — and any pressure stemming from energy prices set to continue to dissipate in the months ahead, this morning’s inflation data is unlikely to raise any red flags at the Bank of Canada. As a result, the table is set for another 25 basis-point rate cut at the next Bank’s next fixed announcement date on August 28.”

BMO Nesbitt Burns agrees, noting, “Despite the rise in core prices, inflation will continue to retreat, and with the economy continuing to cool the Bank of Canada will likely trim rates another 25 basis points.”

CIBC World Markets concurrs, saying, “Despite the conflicting nature of today’s report, we continue to look for headline and core inflation to head in the same direction over the balance of the year — and that’s down.” It says the Bank of Canada has enough room to offer additional monetary stimulus in the coming months. “On that score, look for the Bank to match today’s near-certain 25 bps Fed cut at next Tuesday’s rate-setting date.”

RBC DS Capital Markets Research makes it unanimous, saying that today’s report will not stand in the way of another rate cut. It sees, headline prices continuing to trend down, on its way to near a 2% core by year-end.