Annual inflation rate turned negative in June

Lower gasoline prices helped Canada's annual rate of inflation turn negative in June for the first time since 1994.

Statistics Canada reported Friday that the 12-month Consumer Price Index fell to minus 0.3 per cent last month. The June decrease matched the expectations of economists.

The drop was due primarily to a 12-month decline of 19 per cent in prices for energy products, particularly gasoline, Statistics Canada said, adding that  the CPI actually rose 2.1 per cent in June when energy costs are factored out.

"The 12-month headline inflation rate will be negative for a few months, but you can’t call that deflation, not if it’s so closely tied to a single price," CIBC World Markets economist Avery Shenfeld said.

Gasoline prices dropped 24.3 per cent between June 2008 and June 2009, following a 12-month decline of 25.1 per cent registered in May.

Statistics Canada said that for June 2009, unleaded gasoline prices at self-service stations averaged 101.6 cents per litre compared with 135.1 cents per litre in June 2008.

While gasoline was down, the major contributor putting upward pressure on CPI in June continued to be higher food prices. 

Statistics Canada said food price increases have been slowing since March 2009.  In the 12 months to June, food prices rose 5.5 per cent, compared with one-year increases of 6.4 per cent in May and 7.1 per cent in April.

The Bank of Canada's core inflation rate, which factors out several volatile components, such as energy and some foods, advanced 1.9 per cent over the 12 months to June, following a two per cent increase in May.

On a seasonally adjusted one-month basis, the CPI rose 0.3 per cent from May to June, after increasing 0.2 percent  from April to May. The June increase was mainly due to a rise in gasoline prices between May and June.

"The downward pressure [on CPI] is narrowly based and largely concentrated in the volatile energy prices," said Paul Ferley, an assistant chief economist with Royal Bank. 

"The annual rate of increase in the Bank of Canada’s core measure, which eliminates a number of the more volatile series, both energy and non-energy, and thus better reflects the underlying trend in inflation, continues to increase close to the two per cent mid-range target."