Annual inflation rate turned negative in June

Lower gasoline prices helped Canada's annual rate of inflation turn negative in June for the first time since 1994.

Statistics Canada reported Friday that the 12-month Consumer Price Index fell to minus 0.3 per cent last month. The June decrease matched the expectations of economists.

The dropwas due primarily to a 12-month decline of 19 per centin prices for energy products, particularly gasoline, Statistics Canada said, adding thatthe CPI actuallyrose 2.1 per cent in June when energy costs are factored out.

"The 12-month headline inflation rate will be negative for a few months, but you cant call that deflation, not if its so closely tied to a single price," CIBC World Markets economist Avery Shenfeld said.

Gasoline pricesdropped24.3 per cent between June2008and June2009, following a 12-month decline of25.1 per centregistered in May.

Statistics Canada said thatforJune2009,unleaded gasoline prices at self-service stations averaged101.6cents per litre compared with135.1cents per litre in June2008.

While gasoline was down, the major contributor putting upward pressure onCPI in June continued to behigher food prices.

Statistics Canada saidfood price increases have been slowing since March2009. In the12months to June, food prices rose5.5 per cent, compared with one-year increases of6.4 per cent in May and7.1 per centin April.

TheBank of Canada'score inflation rate, which factors out several volatile components, such as energy and some foods, advanced1.9 per cent over the12months to June, following atwo per cent increase in May.

On a seasonally adjusted one-month basis, the CPI rose0.3 per centfrom May to June, after increasing0.2 percent from April to May. The June increase was mainly due to a rise in gasoline prices between May and June.

"The downward pressure [onCPI]is narrowly based and largely concentrated in the volatile energy prices," said Paul Ferley, an assistant chief economist with Royal Bank.

"The annual rate of increase in the Bank of Canadas core measure, which eliminates a number of the more volatile series, both energy and non-energy, and thus better reflects the underlying trend in inflation, continues to increase close to thetwo per centmid-range target."