TORONTO (Reuters) - Canada's annual inflation rate reached the central bank's target in August as it cooled to 2%, its lowest level since February 2021, data showed on Tuesday.

Analysts polled by Reuters had forecast that growth in the consumer price index would slow to an annual rate of 2.1%, from 2.5% in July.

Market reaction: [CAD/]

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COMMENTARY

ANDREW GRANTHAM, SENIOR ECONOMIST, CIBC CAPITAL MARKETS

"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. We continue to forecast a further 200bp of interest rate cuts between now and the middle of next year."

STEPHEN BROWN, DEPUTY CHIEF NORTH AMERICA ECONOMIST, CAPITAL ECONOMICS

"The return of headline inflation to the 2.0% target in August was mainly due to favourable base effects and will be brief, with inflation set to rise back to 2.5% in the fourth quarter."

"Nonetheless, the details of the August release provide further evidence that the inflation battle is almost won, and will serve to increase speculation that the Bank might soon cut by a larger 50 bp (basis points)."

ANDREW KELVIN, HEAD OF CANADIAN AND GLOBAL RATES STRATEGY, TD SECURITIES

"Core inflation is still a little bit stronger than the headline number, which implies that the 2% number perhaps overstates the degree of which progress has been made on inflation."

"Still, the fact that we are returning to the Bank of Canada's inflation target will be immensely encouraging for the Bank of Canada, and will increase their confidence that they have accomplished their goals on quelling inflation, that will allow them to increase their focus on the outlook for growth and employment."

"It's going to be very interesting, because it's going to put the growth data in heightened focus and the Q3 data will be quite noisy due to rail strikes and the like. I think it's going to be a very interesting couple months in Canada."

DEREK HOLT, VICE PRESIDENT OF CAPITAL MARKETS ECONOMICS, SCOTIABANK

"The weighted median and trimmed mean accelerated again in the month of August - 2.9% month-over-month seasonally adjusted at an annualized rate for weighted median and 2.3% for trimmed mean."

"So July was a temporary soft patch. I still think that inflation risk is alive. I don't look at the year-over-year readings on some of the other headline gauges. I think the Bank (of Canada) is more focused on those readings I mentioned."

(Reporting by Nivedita Balu and Fergal Smith; Editing by Fergal Smith and Alex Richardson)