Gas price plunge drops annual inflation to 0.7 per cent in October

OTTAWA – A big drop in the price of gasoline and declines in several other goods and services pushed down Canada’s inflation rate in October to 0.7 per cent, the lowest since last May, Statistics Canada said Friday

The country’s annual inflation rate was down four-tenths from September’s already low 1.1 per cent and below the 0.9 per cent rate that analysts had been expecting.

On a monthly-to-month basis, the agency said prices overall fell 0.2 per cent from September.

Although there were several factors underlying the decline, the biggest reason was gasoline, which plunged by 5.1 per cent from September and by 4.3 per cent from October 2012.

“Lower gasoline prices were a factor in all provinces in October, with Saskatchewan (-8.6 per cent) recording the largest year-over-year decrease and Ontario (-1.8 per cent) posting the smallest,” the agency said in a release.

The other side of the picture was that there were few goods and services where price pressures appeared to be building significantly last month.

The Bank of Canada cited the persistent low inflation for its decision last month to jettison a long-standing bias towards raising interest rates. The change suggested governor Stephen Poloz and his advisers were worried that the economy was weaker than previously thought.

It’s doubtful that October’s surprisingly low inflation rate will, by itself, cause the central bank to consider a rate cut in next month’s policy announcement.

The bank puts a lot of store on core inflation, which strips out volatile items such as energy and some food, and that measure only declined slightly to 1.2 per cent in October, from 1.3 in September.

While lower than the bank’s ideal of 2.0 per cent annual inflation, core inflation is still safely within its acceptable range of 1.0 per cent to 3.0 per cent.

Still, the overall inflation picture in Canada remains the tamest in years.

Consumer prices rose at a slower pace year-over-year in seven out of the 10 provinces, with British Columbia registering an outright decline of 0.3 per cent. As well, prices fell from last year in three of the eight major components the agency tracks — clothing and footwear (-0.7 per cent), transportation (-0.1) and health and personal care (-0.5).

Of the major items that saw price increases, food rose a meek 0.9 per cent and shelter costs rose only slightly more by 1.3 per cent. Of the major components, only alcohol and tobacco rose above two per cent, and only slightly so at 2.3.

On a monthly basis, hotels, natural, electricity and fresh vegetables were all lower than in September.