Thursday, May 21, 2009

Annual inflation rate eases to 0.4% in April

Lower energy costs helped Canada's annual rate of inflation cool in April to 0.4 per cent, down from the 1.2 per cent 12-month increase in March.

Economists said the 12-month inflation rate in April was the lowest since 1994, when cigarette taxes were reduced.

Statistics Canada said Wednesday that food prices continued to put upward pressure on the consumer price index, while price declines for energy and reduced upward pressure from some shelter costs helped ease the overall inflation rate last month.

Food prices rose 7.1 per cent during the 12-month period to April, down from the 7.9 per cent rise in March.

Due to a sharp drop in natural gas prices, shelter costs rose 0.2 per cent during the 12-month period to April after increasing 2.1 per cent in March. The 12-month change in the shelter price index has been slowing since July 2008.

Transportation costs fell eight per cent, thanks to year-over-year declines in prices for both gasoline and passenger vehicles.

Gasoline prices fell 24.7 per cent from April 2008 to April 2009 following a 12-month decline of 21 per cent in March.

The Bank of Canada's core rate of inflation, used in the setting of monetary policy, advanced 1.8 per cent over the 12 months to April, down from the two per cent rise in March.

"Canadian inflation is now in full retreat, with a dip into negative headline readings due ahead — even with the recent back-up in gasoline prices," said BMO Capital Markets economist Douglas Porter.

"While underlying price trends are holding firmer, they also look to wane notably, especially now that the fever in grocery prices has finally broken," he said.

Porter said the core inflation rate will remain firmer, but even that is forecast to recede. He said the Bank of Canada expects core inflation to slip below one per cent in the fourth quarter, after averaging 1.6 per cent in the current quarter.

"By mid-2011, the [Bank of Canada] forecasts that both the headline and core inflation rates will be back at the two per cent target," said RBC assistant chief economist Dawn Desjardins.