Headline inflation rate eases to 2.6 per cent as gasoline prices recede

By The Canadian Press

OTTAWA - Sharply falling energy prices took the steam out of inflation last month, cutting the overall rise in Canadians' cost of living to 2.6 per cent, down from 3.4 per cent in September.

On a month-to-month basis, consumer prices fell one per cent in October from September, the largest drop since June 1959.

Statistics Canada said Friday that gasoline was the key reason for the sharp drop, as pump prices fell 13.4 per cent in October from September.

The agency noted that gasoline prices were still 13.3 per cent higher than in October 2007, and overall inflation is poised to ease further this month thanks to steepening pump price decreases.

Lower energy costs were felt in other items as well last month. Transportation costs were only 1.6 per cent higher than a year ago, as opposed to 4.7 per cent higher in September.

While energy costs eased, the price of food rose for the eight consecutive month.

Overall, food prices were 6.1 per cent higher in October than last year, Statistics Canada said. Food purchased in grocery stores was 7.3 per cent higher, and baked goods were up 14.2 per cent. Staples such as bread rose 17.7 per cent and pasta was up 37.1 per cent year-over-year.

Canadians also paid more for housing in October, as mortgage interest costs rose 7.2 per cent, shelter expenses were up 3.8 per cent and property taxes rose 3.2 per cent.

But many items were less expensive in October than last year.

The cost of buying or leasing a vehicle fell nine per cent, computer equipment and supplies dropped 12 per cent and clothing and footwear slipped 2.8 per cent.

Core prices - excluding volatile items like food and fuel - were down 0.2 per cent on the month. That left year-over-year core inflation at 1.7 per cent, below the Bank of Canada's target of two per cent.

Regionally, the annual inflation rate fell in eight provinces, with only Saskatchewan and Manitoba bucking the trend.

Friday's report "reinforces the point that Canadian inflation is melting in real time," commented BMO Capital Markets economist Douglas Porter.

"With notable weakness in a variety of core components adding to the deep dive in gasoline, the Bank of Canada has the all-clear signal to continue cutting rates."

The central bank's governor, Mark Carney, strongly hinted Wednesday that further interest rate reductions are in prospect to support the economy.

With falling prices for furniture, homes and autos, "basically, any big-ticket, discretionary items are under pressure," BMO's Porter observed.

"With consumers undoubtedly hunkering down, these goods could fall further despite the drop in the dollar."