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Inflation falls to 3.4%.

Canada's inflation rate dropped to 3.4% in May, the lowest since June 2021.

The drop comes as the Bank of Canada is preparing for its upcoming interest rate decision on July 12, after raising it by a quarter percentage point to 4.75% earlier this month.

Statistics Canada reported on Tuesday that the slowdown was largely due to lower gasoline prices compared to a year ago.

However, the long-awaited decrease in food costs has yet to materialize in Canada. Grocery prices rose 9% on an annual basis, showing little improvement since April.

Meanwhile, the overall slowdown comes after inflation rose to 4.4% in April, marking a slight setback from the progress made since last summer.

The Bank of Canada partly justified its recent rate hike by pointing to the slight increase in inflation in April. It is expected to make its next interest rate decision based on incoming economic data, including Tuesday's inflation report.

The central bank had expected inflation to significantly decline this year to around 3% by the summer. This is due to what economists call base-year effects, where price movements from a year ago impact the calculation of the inflation rate.

Given the rapid price surge that occurred in the first half of 2022 following the Russian invasion of Ukraine, the pace of inflation is slower today because prices are being compared to those elevated levels.

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