Inflation begins to ease in September

Fri Oct 24, 2008 7:42am EDT
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By Louise Egan

OTTAWA (Reuters) - Canada's annual inflation rate began to descend from a five-year high in September, as prices fell for cars, clothing and computers, Statistics Canada said on Friday.

The consumer price index was 3.4 percent higher in September from a year earlier, in line with forecasts and down from a rate of 3.5 percent in the previous month. On a monthly basis, CPI advanced 0.1 percent.

Core inflation, which strips out volatile items like gasoline and is considered the most reliable gauge of underlying price trends, was unchanged at 1.7 percent on the year but gained 0.4 percent in the month.

"It's a bit of a holding pattern for inflation," said Eric Lascelles, chief economics and rates strategist for TD Securities.

The inflation data is expected to have little influence on the Bank of Canada, which now sees inflation dropping below 1 percent next year as commodity prices tumble and the global economy slows sharply.

"I think what we are going to see in the next couple months is headline inflation recede rapidly because this really captures the last of the strength in gasoline prices and we know that gasoline prices have tumbled more than 15 percent since September," said Doug Porter, deputy chief economist at BMO Capital Markets.

After falling sharply in July and August, oil prices paused in September, gaining 0.9 percent on the month, before resuming their freefall. Even so, gasoline continued to be the main factor contributing to the annual inflation rate, with prices up 26.5 percent compared with September 2007.

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<p>Canadian one dollar coins are displayed in Montreal, September 19, 2007. REUTERS/Christinne Muschi</p>