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Canada's annual inflation rate falls to 0.1% in July

OTTAWA (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.

FILE PHOTO: A woman shops in the Eaton Centre shopping mall, as the provincial phase 2 of reopening from the coronavirus disease (COVID-19) restrictions begins in Toronto, Ontario, Canada June 24, 2020. REUTERS/Carlos Osorio/File Photo

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 CAD= pared its gain after the data, but then rose to a near seven-month high at 1.3133 to the greenback, or 76.14 U.S. cents. 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.

Air transportation prices fell for the first time since December 2015 as airlines offered incentives like reduced fees and discounts to encourage travel as they look to claw back business lost to the coronavirus pandemic.

“Inflation took a big step back in July, reflecting what is likely to be a long and winding road back to the Bank of Canada’s target,” said Royce Mendes, senior economist at CIBC Capital Markets.

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%.

Canadian wholesale trade, meanwhile, increased by a record 18.5% in June from May as large parts of the economy reopened following coronavirus closures.

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, Paul Simao and Andrea Ricci

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