The index declined 0.7 percent during the month, led by a 12 percent drop in gasoline prices, Statistics Canada said today in Ottawa. Gasoline prices fell a record 26 percent from a year earlier, bringing the annual inflation rate down to 1.2 percent from a pace of 2 percent in November, the agency said.
Bank of Canada Governor Mark Carney three days ago cut borrowing costs by half a point to 1 percent, the lowest since the central bank was founded in 1934, as slowing inflation gives the policy makers scope to lower interest rates to help revive the world's eighth-largest economy.
Policy makers set interest rates to keep annual inflation between 1 percent and 3 percent, with a target of 2 percent.
Inflation will decline by 0.6 percent in the second quarter and 1 percent in the third, and won't return to the bank's target until the first half of 2011, the bank said yesterday, giving it room for more cuts in borrowing costs.
Excluding gasoline and seven other volatile items, the so- called core index, annual inflation was unchanged at 2.4 percent in December as rising food prices offset cheaper automobiles. On a monthly basis, core prices fell 0.4 percent. Economists predicted a month-on-month decline of 0.3 percent for the core index, with prices seen rising at an annual pace of 2.4 percent.
A weakening currency late last year fueled prices for imported goods even as prices for gasoline fell. Fresh vegetables, most of which are imported, jumped 4.6 percent during the month of December, Statistics Canada said.