Canada Inflation Falls More Than Expected

Canada’s consumer prices fell more than economists expected last month, almost matching the biggest decline in half a century, as gasoline costs plunged.

The consumer price index fell 0.8 percent in August from a year earlier, after July’s 0.9 percent drop that was the biggest since 1953, Statistics Canada said. On a monthly basis the index was unchanged in August, instead of the 0.1 percent gain economists predicted, after a 0.3 percent fall in July.

The Bank of Canada said Sept. 10 it would keep its key lending rate at a record low 0.25 percent through June 2010 unless the inflation outlook shifts. The central bank predicted in July that year-over-year inflation would decline 0.7 percent this quarter and remain below policy makers’ 2 percent target until the second quarter of 2011.

Gasoline prices fell 21 percent in August from a year ago, Statistics Canada said. Natural gas prices plunged 38 percent on the year while fuel oil costs were off 41 percent.

The annual inflation rate excluding gasoline and seven other volatile items -- the so-called core rate that the central bank uses to estimate future price trends -- decelerated to 1.6 percent from 1.8 percent in July. The core rate advanced 0.1 percent on the month. Both the monthly and annual core rates matched economists’ predictions.

Canadian prices have fallen during the biggest global recession since the 1930s -- in August 2008, the annual inflation rate was 3.5 percent. Canada’s recession began in the fourth quarter of last year, and the economy probably started growing again this quarter, the Bank of Canada has said.

Canada Inflation Falls More Than Expected, Bloomberg
9/17/2009 9:16:44 AM