NEWS

Cheaper gas pushes inflation lower

05/17/2013 10:10 EDT | Updated 07/17/2013 05:12 EDT
Canada's annual inflation rate fell sharply in April, from 1.0 per cent the previous month to 0.4 per cent largely on the back of lower gasoline prices.

Statistics Canada reported Friday that Canada's consumer price index dropped to 0.4 per cent in the 12 months ended in April.

The largest factor in the slowdown was the drop in gasoline prices, which were 6.0 per cent lower in April over the same month in 2012.

That's the largest annual decline in gas prices since October 2009, the data agency said.

Lower prices in B.C., N.B.

Many other subsectors also declined.

Transportation costs overall declined 2.1 per cent. Mortgage interest costs, video equipment, automobiles and travel tours also were lower.

Food prices rose 1.5 per cent, but that was less than the 1.8 per cent rise in March, while shelter costs increased by 1.3 per cent.

Regionally, British Columbia and New Brunswick saw their inflation rate dip into negative territory. All other provinces saw prices increase, but only slightly.

The Canadian dollar was down almost a penny on Friday to 97.18 cents US after the data was released.

"These numbers are incredibly, incredibly mild," said Bank of Montreal chief economist Doug Porter. "To me this is fully consistent with an economy that is struggling to show much growth, and with the relatively soft economic backdrop we're also seeing very low pricing power."

The weak data will likely halt suggestions that the Bank of Canada needs to start raising interest rates to slow down a rebounding economy in danger of causing too much inflation. The figure is well off the bank's ideal of two per cent annual inflation and even below the low end of its one-to-three per cent target range.

Canada's inflation rate "might slip below its target range as economic growth disappoints this year and the unemployment rate nudges higher," David Madani of Capital Economics told clients in a research note. "Under these circumstances, we believe that the Bank of Canada would choose to do away with its interest rate tightening bias."

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