Canada Consumer Prices Fall

Canadian consumer prices posted an annual decrease last month for the first time since 1994 on gasoline prices, giving the Bank of Canada scope to maintain interest rates at record lows.

The consumer price index fell 0.3 percent in June from a year earlier, Statistics Canada said today in Ottawa. The index rose 0.3 percent from the previous month.

The Bank of Canada cut its benchmark interest rate to 0.25 percent on April 21 and pledged to keep it there through June 2010 because of a buildup of spare capacity in the economy and a weak inflation outlook. The Bank of Canada implements policy to keep inflation at 2 percent annually.

The central bank projected in April that the consumer price index will fall at an annual pace of 0.8 percent in the third quarter of this year, and inflation will not return to the bank’s 2 percent target before the second half of 2011.

Statistics Canada said today that the annual inflation rate excluding gasoline and seven other volatile items -- the so- called core rate that is closely watched by the central bank -- decelerated to 1.9 percent from 2 percent in May. On a monthly basis, core prices were unchanged.

Lower costs for transportation, shelter, clothing and footwear were responsible for the annual decline in the overall index, the statistics agency said, including a 24 percent drop in gasoline prices. Natural gas prices were down 24 percent over the 12-month period.

The 0.3 percent decline was the largest drop since the index fell 0.7 percent in August 1955, Statistics Canada said.

Food prices were up 5.5 percent in June from a year earlier, the statistics agency said.

Canada Consumer Prices Fall, Bloomberg
7/17/2009 9:10:38 AM