(Updates throughout, adds CAD reaction, analyst comment)
By Kelsey Johnson and Julie Gordon
OTTAWA, Aug 19 (Reuters) – Canada’s annual inflation rate fell to 0.1% in July from 0.7% in June as price growth slowed broadly across the goods and services sectors, with air transportation prices declining for the first time since 2015, Statistics Canada said on Wednesday.
The inflation rate came in below analyst expectations of 0.5% in July.
“There was obviously a downside surprise, especially on the headline inflation,” said Doug Porter, chief economist at BMO Capital Markets, adding: “Any talk of upside risk for inflation has obviously been put on the back-burner.”
The Bank of Canada has said interest rates will remain near record lows for another two years and has predicted inflation will remain weak in the near term.
The Canadian dollar pared its gain to trade at 1.3154 to the greenback, or 76.02 U.S. cents, but still holding near a seven-month high.
Prices rose in five of the eight major components on a year-over-year basis, though growth slowed the most in the transportation component, mostly due to air transportation, Statscan said.
CPI common, which the central bank says is the best gauge of the economy’s underperformance, was at 1.3%, while CPI median, which shows the median inflation rate across CPI components, was at 1.9%.
CPI trim, which excludes upside and downside outliers, was at 1.7%. (Reporting by Julie Gordon and Kelsey Johnson in Ottawa; Additional reporting by Dale Smith in Ottawa, Fergal Smith and Nichola Saminather in Toronto, Editing by Toby Chopra and Paul Simao)