November inflation dips to 2 per cent

Canada's inflation rate tumbled to two per cent in November as recession-ravaged businesses cut prices to keep customers coming, Statistics Canada reported Friday.

The national consumer price index increase dropped to 2.0 per cent in the month compared with October's 2.6 per cent figure. November's reading represented an even larger drop compared with the September CPI of 3.4 per cent.

"The slowdown in November was due primarily to gasoline prices, which were 14.4 per cent below November 2007 levels, and far offset increases for food and shelter items," said Statistics Canada in a press release announcing the November numbers.

Benefits of economic weakness

Gasoline prices have fallen in recent months as lower crude oil prices get translated into a smaller consumer bite at the gas pump.

What was once a crude price of $147 US a barrel in the summer is now in the $40 range. The crude reduction has led to gas prices falling in lockstep. Pump costs were down 21 per cent in November compared with October.

Once energy costs were subtracted from the overall November figures, prices actually gained 1.4 per cent in the 12 months from last November compared with the 12-month period from October 2007.

Clothing and footwear prices also fell, down 2.4 per cent in November.

On the upside, food costs jumped for the ninth month in a row, up 7.4 per cent. In this category, vegetable prices spiked 28 per cent in November while costs for baked goods rose nearly 13 per cent.

CPI falls with economy

In past readings, analysts have attributed falling prices — or at least the inability to pass along any price increases — to the faltering global economy.

September was the month when the world credit crunch really began to take hold, economists noted, and September's inflation rate dropped compared with August.

In many cases, retailers and other businesses cut prices in the face of an economic downturn rather than risk losing market share as cost-conscious consumers went bargain hunting.

Canada's weak retail sales figures for October, a drop of 0.9 per cent, reflected these price pressures and the reluctance of buyers to go on spending sprees.

The intersection of recent bad economic news probably means Canada's economy will keep dropping, analysts said.

"[The] weak retail sales report, the decline in Canadian employment in November and the likely sharp drop in economic activity in the United States support our view that the Canadian economy will likely decline 2.5 per cent in the fourth quarter. This is expected to mark the entry point into recession for the Canadian economy that will continue into the first quarter of next year," said RBC's assistant chief economist Paul Ferley in an earlier commentary.

As the country's economic fortunes fade, so too will the ability of companies to raise prices.

RBC, for instance, predicts that Canada's CPI will average 1.8 per cent for the final three months of the year, a level below the reading for October and November.