January annual inflation rate cools: StatsCan

Canada's annual inflation rate eased slightly in January, coming in at 1.1 per cent. That was down from the 12-month increase of 1.2 per cent recorded in December.

Statistics Canada says consumers paid less for gasoline and to buy or leasepassenger vehicles.

Gasoline prices in January2009were23.5 per cent below the level in the same month in2008.

Dealer incentives helped bring down prices on purchased and leased cars. The cost of purchasing and leasing passenger vehicles fell8.2 per cent compared with a year earlier, a sharper decline than the3.5 per centyear-over-year drop observed in December.

Higherfood and shelter prices

Upwardpressureon the annual inflation rate came from highercosts forfood and shelter.

Food prices increased7.3 per centduring the one-year period to January, identical to the increase in December. Higher prices were seen for bakery goods,cereal products andfresh vegetables.

Shelter costs rose by 3.3 per cent in the 12 months to January, pushedby higher mortgageinterest payments and natural gas prices. The one-year shelter costs showed a moderating trend as January's increase wasdown from a 3.5 per cent rise seen in December and 3.9 per cent reported for November.

The Bank of Canada's core index which factors out many of the more volatile inflation influences increased1.9 per centover the12months to January, a slowdown from the2.4 per centrise in December. Lower prices for purchasing and leasing of passenger vehicles limitedthe increase in the core index.

On a seasonally adjusted month-to-month basis, consumer prices fell0.1per centfrom December to January, following monthly declines of0.3 per cent in December,0.3 per cent in November and0.6 per centin October.

One economist said Canada currently has little to worry about when it comes to inflationary pressures.

"Inflation is now about as menacing to Canada as Luxembourgs navy," said BMO Capital Markets economist Douglas Porter.

"With the economic downturn gathering force and commodity prices still reeling, inflation is poised to move decisively lower in the months ahead. A temporary dip into negative inflation readings looms in the spring. Excluding food and who eats these days? inflation is already negative," Porter wrote in a commentary.

TD Bank economist Grant Bishop said the drop in the core rate of inflation confirmsthe bank'sopinion that theBank of Canada willcut the target for the overnight rate by another half percentage point in March, reducing the key rate to 0.5 per cent.