Canada's inflation rate fell 0.2 percentage points in July to 2.5 percent, its lowest level in more than three years, the national statistical agency said Wednesday.

The drop, expected by economists to increase pressure on the Bank of Canada to further cut its key lending rate, was led by lower prices for travel tours, passenger vehicles and electricity.

"With inflationary pressures fading away but concerns about the weakening labour market growing, we continue to forecast three further 25 basis point cuts by the Bank of Canada at (its) remaining meetings this year," CIBC Economics analyst Andrew Grantham said in a research note.

Inflation last month increased at its slowest pace since March 2021, according to Statistics Canada, while the jobless rate remained stuck at 6.4 percent.

Prices fell year over year for hotel accommodations and air transportation.

Shelter prices rose at a slower rate than the previous month with downward pressure coming from electricity, mortgage interest costs, rent, and fuel oil.

Gasoline prices, meanwhile, rose at a faster pace in July.