Canada's inflation rate drops to 1.5% on cheaper gasoline

Canada's annual inflation rate slowed to 1.5per cent in December, down from twoper cent in November,as the plunging price of gasoline again helped to rein in the cost of living.

The inflation rate hasn't been that low since March.

Statistics Canada attributedthe lower ratemostly to analmost 17 per cent drop in pump prices.

To underline that point, the agency reported that if gas prices areexcluded from its calculation, the annual consumer price index (CPI) rate would haveincreased to 2.3 per cent.

Consumerprices rose in seven of the survey's eight major categories, with only transportation declining.

Gasoline prices across the country are continuing their drop this month.

The latest weekly survey from Calgary-basedMJErvin& Associates showed the average price for a litre of regular gas was 91.3 cents a litre as of Tuesday. A year ago, it was $1.34.That will put further downward pressure on overall inflation.

January's CPIfigureswill be released Feb. 26.

Inflation to fall further

The Bank of Canada said the slumping oil pricewasthe main reason behind thesurprise interest rate cut Wednesday.

The central bank said lower crude prices posed a threat to economic growth and its inflation target. Itforecast that the country's annualized inflation rate would drop to just 0.3 per cent in the second quarter.

Statistics Canada said the cost of living in December rose year over year in every province except Prince Edward Island, where the CPI fell0.4 per cent.

The core inflation rate, which excludes suchvolatile items as gasoline, rose slightly to2.2per cent yearoveryear. It had been 2.1 per cent in November.

"Looking past the dramatic dive in gasoline prices, thereis precious little indication that underlying Canadian inflationtrends are being dragged down by the plunge in oil prices," said BMOchief economist Douglas Porter in a commentary.

"On thecontrary, core inflation appears pegged above the two per centthreshold forsome time yet, especially with the upward pressure from a weakeningexchange rate."

On a monthly basis, overall inflation fell 0.7 per cent in December.