By Kim Mackrael 

OTTAWA -- Canada's annual inflation rate held firm at 2.0% in July, defying market expectations for a deceleration as month-over-month consumer gas prices moved higher.

A gauge of underlying prices, which tries to limit the influence of volatile items such as food and gasoline, accelerated slightly.

Canada's consumer-price index increased 2.0% on a year-over-year basis in July, Statistics Canada said Wednesday, matching the previous month's advance. Market expectations were for a 1.6% rise in July, according to economists at TD Bank.

On a month-over-month basis, prices were up 0.5% in July.

The Bank of Canada's preferred measures for underlying inflation moved slightly higher. The average core inflation rate for July came in at 2.03%, compared with an average of 2% in the previous month.

Canada's central bank sets interest-rate policy to achieve and maintain 2% inflation.

Many economists expect the Bank of Canada to leave its key interest rate on hold at 1.75% during a scheduled announcement on Sept. 4, despite heightened trade conflicts and a worsening global outlook. July's stronger-than-expected inflation data could strengthen expectations for keeping rates on hold in the short term.

Wednesday's CPI report indicated that all eight components tracked by Statistics Canada rose in July.

Prices for air transportation rose 4.6% on a year-over-year basis, while prices for travel tours were up 7.5%.

Meanwhile, gasoline prices fell 6.9% from a year ago, following a 9.2% decline in the previous month. On a month-over-month basis, consumer gas prices were up 3.3% in July.

Write to Kim Mackrael at kim.mackrael@wsj.com

(END) Dow Jones Newswires

August 21, 2019 09:31 ET (13:31 GMT)

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