Business and Finance

OTTAWA–Canada’s annual inflation rate continued to fall in November as the steep drop in the cost of filling up at the gas station more than compensated for higher prices charged at the grocery store.

Statistics Canada said yesterday the annual inflation rate dropped to 2 per cent last month from 2.6 per cent in October.

Bank of Montreal economist Doug Porter described the change as "a much milder decline than expected."

November data proves talk of deflation is unfounded, CIBC economist Avery Shenfeld noted. "There’s no serious threat of deflation in Canada, with wages still climbing, unemployment even at the height of this recession likely to be far lower than in past recessions, and labour playing a big role in services costs," Shenfeld stated.

November’s was the second consecutive monthly decline. But core inflation, which excludes volatile items, rose to 2.4 per cent from 1.7 per cent in October.

The agency said gas prices were again the chief reason for the fall in overall inflation as pump prices fell 14.4 per cent from a year ago – the largest decline in more than two years – but that was offset by the falling loonie and higher food prices.

"Fuelling your car got a lot cheaper in Canada in November, but fuelling your body got a lot more expensive," Shenfeld said no fax pay day loans.

On a month-to-month basis, gas prices plunged 21.4 per cent from October, reflecting the tumbling price of crude on global markets.

After rising to record levels last fall, Statistics Canada said the loonie bought 20.6 per cent less in world markets in November, contributing to increases in five of eight inflationary components measured by the agency.

Shenfeld said the recent recovery in the Canadian dollar’s value should help lower food prices in December.

The rise in food prices accelerated in November, up 7.4 per cent from a year ago, including a 28.9 per cent spike in the cost of fresh vegetables. Excluding food, Canada’s annual inflation rate would have risen a mere 0.9 per cent last month.

Given the milder-than-expected decrease, it’s unlikely Canada will see interest rates as low as the zero per cent of the U.S. Shenfeld predicted Bank of Canada will cut rates to 1 per cent or 0.75 per cent in early 2009.

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