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Inflation in Canada fell sharply last month to 2.3 per cent, as prices for most major items – from gasoline and food, to cars and clothing – plunged in December.

The 0.6-per-cent decline both in the annual rate, and the actual decrease in consumer prices from the previous month, was among the steepest one-month decline reported by Statistics Canada since the summer of 2009, when the country was in recession.

Analysts had expected prices to cool in December due to Christmas season sales, but not by this much. The consensus was for a 0.4 per cent falloff.

But it was only the scale of the decrease that was surprising, not the trend. The Bank of Canada this week predicted annual inflation would fall to about 1.5 per cent by the second quarter of this year.

As expected, pump prices saw the steepest decline, with the year-over-year growth falling to 7.6 per cent from 13.5 per cent in November as the cost of filling up fell three per cent in one month.

“Gas prices have declined steadily on a monthly basis since June,” the federal statistical agency noted.

Other major items that go into the inflation index also fell in December. Food inflation dipped from 4.8 per cent in November to 4.4 per cent in December, although common staples such as meat, bread and fresh vegetables saw bigger increases.

Purchasing a car was also less expensive in December, by 2.3 per cent, as manufacturers continued to offer discounts, including on new 2012 modes, the agency said.

And clothing cost 5.1 per cent less last month, likely as a result of Christmas season sales, than it had in November.

Overall, the agency said prices declined in five of the eight major components it tracks, bringing the inflation rate for 2011 as a whole to 2.9 per cent, just within the Bank of Canada’s broad one-to-three per cent range. Still it was the highest average rate in several years.

The central bank’s core index, which excludes volatile items such as gas and some foods, dipped below the two-per-cent target to 1.9 per cent.

Items that saw a price increase from November included electricity, fresh vegetables and fruit, homeowner replacement costs and financial services, although the gains on average tended to be modest.

Regionally, prices rose at a slower rate in every province except Prince Edward Island last month. New Brunswick posted the highest annual rate of price inflation at 3.3 per cent, while British Columbia was the lowest, at 1.7 per cent.



The Canadian Press

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