Canada's annual inflation rate slowed to 2.8% in June on lower prices for gasoline as a result of the base-year effect, while food and mortgage interest costs remain high, Statistics Canada said on Tuesday.

This beat analysts' expectations for annual inflation to fall to 3.0%, down from 3.4% in May.

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COMMENTARY

ROYCE MENDES, DIRECTOR & HEAD OF MACRO STRATEGY AT DESJARDINS

"The Bank of Canada's preferred measures of core inflation, which exclude significant moves in individual categories, shows that underlying price pressures remain sticky. The three-month annualized rate of the core median measure remained at 3.6%, while the trimmed mean indicator accelerated to 4.0% from 3.9% in May."

"According to our calculations, the core-services excluding shelter measure was also down just a tick in June to 4.8%. As a result, there's scope for headline inflation to reaccelerate in the months to come as some of the recent progress can be chalked up to one-off moves lower in prices."

"That said, despite signs of sticky underlying inflationary pressures and resilience in economic activity indicators, the Bank of Canada has given itself a long time to reach the 2% target."

MICHAEL GREENBERG, SVP AND PORTFOLIO MANAGER, FRANKLIN TEMPLETON INVESTMENT SOLUTIONS

"Clearly, the headline number has come down below expectations, actually below 3%, which is a big milestone ... But when you look at the more core measures that the Bank of Canada tends to focus on, they do remain elevated, well above that 2% target."

"So that continues that narrative that inflation is definitely moving in the right direction, but we're seeing stickier and more persistent core measures."

"Our view is that the lagged effects of previous hikes, with inflation trending in the right direction, they're (the Bank of Canada) probably going to be able to pause and allow rates to do their thing."

ANDREW KELVIN, CHIEF CANADA STRATEGIST AT TD SECURITIES

"As much as the headline number, you would much rather see a downside surprise, rather than an upside surprise. I don't think the Bank of Canada is going to be too encouraged by this number just because we do see this persistence in core inflation."

"It would be a little bit too premature to just start celebrating ... I think the message is that there is still more work to be done."

JULES BOUDREAU, SENIOR ECONOMIST AT MACKENZIE INVESTMENTS:

"They're promising, decent numbers. Interesting that core seems to be a little bit more sticky than expected. But when you look at the headline, disinflation is really among us. I'll have to dig into the numbers more, but it's a good sign for the (central) bank.

"If everything else comes in - obviously there's a lot of stuff that's going to be coming out before the next decision - but if everything comes in around what the bank was expecting, we should be seeing the end of the rate hikes, especially because we know that they weren't certain about hiking in July."

"Going forward base effects are going to be slightly positive - very, very small. But the era of big bass effects that we have for the past few years is pretty much done. So I think, from now on the year-on-year is going to be more in line with the month-on-month. But the monthly inflation this month was super low, in part because of energy. If you look at core inflation three-month annualized, we're still above 3.5%. So there's still some work to be done. But policy is probably restrictive enough at the moment to do that."

(Reporting by Steve Scherer, Nivedita Balu, Fergal Smith; Editing by Denny Thomas)