Inflation rate falls to 1%

Canada's inflation rate dropped to the lowest level in eight months in June, asgas, footwear and clothingprices pushed the annual rate down to1.0 per cent.

The rate dipped 4/10ths of a point from 1.4 per cent in May. It was1.8 per cent in April.

Volatile energy prices have affected Canada's inflation rate for the last several years, as the price of crude oil has swung from roughly $150 US per barrelin 2007 to roughly $50 during the depths of the recession in 2008-09.

In June, the overall energy component of the consumer price index was up, but gasoline prices were lower by 2.9 per cent from where they were a year earlier.

Prices rose year-over-year in seven of the components measured by Statistics Canada. Clothing and footwearwas the only exception, declining 1.8 per cent.

Increases were modest, with food prices rising 0.7 per cent; household operations 1.2 per cent; transportation one per cent, and shelter costs 1.6 per cent as home prices increased by 5.2 per cent, but mortgage costs fell by5.0 per cent.

On a seasonally adjusted monthly basis, consumer prices fell 0.2 per centin June, the same rate of decrease as in May.

Within target range

The closely watched underlying or so-called"core inflation rate" moved 1/10th of a point lower to 1.7 per cent, wellbelow the central bank's target two to three per cent range. The core rate is the rate the Bank of Canada pays closer attention to in setting monetary policy.

Statistics Canada said the main pressure on the core index, which excludes volatile items such as energy, came from higher prices for passenger vehicles, insurance, homes, and electricity and telephone services.

The tame inflation reading gives the Bank of Canada breathing room as it decides whether to raise its key interest rates again.

The central bank hiked its benchmark interest rate to 0.75 per cent on Tuesday, saying the increase was necessary to keep inflation expectations on target.

The bank noted inflation is expected to pick up in future months because of the introduction of the harmonized sales tax in Ontario and British Columbia in July, but said that one-time change would be considered when deciding monetary policy. BMO economist Sal Guatieri estimates that the HST will provide a one-time pop worth about 0.7 percentage points to the main inflation rate.

"Inflation is really going nowhere fast," Guatieri said. "We still look for a September rate hike followed by a two-meeting pause."