Canada Inflation Fall Most Since 1953


Canada’s consumer prices last month fell the most since 1953 on an annual basis, giving the Bank of Canada scope to honor its commitment to keep the benchmark lending rate unchanged at a record low.

The consumer price index fell 0.9 percent in July from a year earlier, its second consecutive decline on lower gasoline prices, and was down 0.3 percent from the previous month, Statistics Canada said today.

The Bank of Canada cut its rate to 0.25 percent in April and said it would leave it there through June 2010 because of spare capacity in the economy and a weak inflation outlook. Falling prices may now give policy makers ammunition to hold off on rate increases even after the conditional commitment expires in June, said Derek Holt, an economist at Scotia Capital in Toronto. The bank runs monetary policy with the goal of keeping inflation at 2 percent annually.

The bank projected in July that the consumer price index will fall at an annual pace of 0.7 percent during the third quarter of this year, and that inflation will not return to the bank’s 2 percent target before the second quarter of 2011.

The annual inflation rate excluding gasoline and seven other volatile items -- the so-called core rate that the central bank watches closely -- decelerated to 1.8 percent from 1.9 percent in June. The median forecast by economists was that the rate would stay at 1.9 percent. Core prices were unchanged on a monthly basis, compared with economists’ forecast of a 0.1 percent rise.

July’s annual decline in the overall index was led by lower transportation costs, mainly a 28 percent drop in gasoline prices and lower prices for cars, StatsCan said. Falling prices for fuel oil and natural gas, along with a drop in homeowner’s replacement costs, led to a 2 percent annual decline in shelter costs, which account for 27 percent of the consumer basket.

The 0.9 percent decline was the largest drop since the index fell 1.4 percent in July 1953, the Ottawa-based statistics agency said.

Food prices were up 5 percent in July from a year earlier, the statistics agency said.


TradingEconomics.com, Bloomberg
8/19/2009 9:30:22 AM