Canada prices fall, recovery signals brighten

Thu Sep 17, 2009 1:54pm EDT
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By Louise Egan

OTTAWA (Reuters) - Canadian consumer prices had the second steepest fall in more than 50 years in August, suggesting inflation will not trouble policymakers as they plot how to undo expansionary measures taken during the recession.

Statistics Canada also said on Thursday that the composite leading indicator rose by a sharper-than-expected 1.1 percent in August, the latest sign the economy is pulling out of deep recession.

Statscan said an increase of more than 1 percent usually only happens in the early stages of economic recovery from a downturn.

Consumer prices overall fell by 0.8 percent in August from a year earlier, the second-largest 12-month drop since 1953, Statscan said. In July, consumer prices slid 0.9 percent at an annual rate, which was the sharpest drop since 1953 when the CPI fell 1.4 percent.

Prices in August were dragged down by falling gasoline prices. On a monthly basis, prices were little changed from July.

Core inflation, considered a better gauge of underlying prices because it excludes volatile items such as gasoline and some foods, met expectations by inching up 0.1 percent on the month and 1.6 percent year-on-year.

The period of falling prices, or deflation, is widely expected to be short-lived, with prices rebounding later this year as the economy expands. Still, the Bank of Canada sees both core and overall inflation staying below its 2 percent target until mid-2011.

"We haven't seen the end to the downsides on core consumer prices going forward," said Derek Holt, vice-president at Scotia Capital Economics.   Continued...

<p>People go shopping in a mall in downtown Toronto, December 23, 2008. REUTERS/Mark Blinch</p>