Canada's annual inflation rate dropped to 2.4 per cent last month, slipping from 2.5 per cent in November, according to a new Statistics Canada report released Friday.
Higher mortgage interest rates and soaring gasoline prices were the main factors driving the annual increase in consumer costs, the said.
The Bank of Canada's core index, used to monitor the inflation control target, decelerated from 1.6 per cent to 1.5 per cent in December.
"What's really important here is that the core inflation rate, which takes away some of the choppier items in the basket," BNN's Michael Kane told Â鶹´«Ã½net on Friday.
"The core inflation rate is the one the Bank of Canada looks at when it establishes interest rates and they don't mind anything around two or two-and-a-half per cent. We are well below that and inflation is clearly not a problem in Canada."
The slide was the sixth consecutive month Canada's core inflation rate dropped, representing the lowest core inflation rate since December 2005. The core index has been on a steady decline since July 2007.
In December, the strongest upward pressure on the annual core index was homeowner's replacement costs (4.4 per cent). The rise in home maintenance costs were partially tempered by a decline in motor vehicle prices as Canadian car dealers slashed prices in order to compete with their U.S. counterparts.
Gasoline was once again the main culprit behind the 2.4 increase in the yearly all-items index. Prices at the pump rose 14.9 per cent between December 2006 and December 2007.
Excluding volatile gasoline prices, the all-items index increased by only 1.7 per cent over the past year, representing no change from November.
Home-heating oil also saw a substantial increase with consumers paying 27.1 per cent more to heat their homes from December 2006 to December 2007. The increase represented the biggest rise in home-heating costs since October 2005.
Mortgage interest costs also contributed to all-items price increases with rates rising 7.3 per cent.
Last month, Canadians paid 2.7 per cent more for restaurant meals compared to December 2006. However, computer equipment costs were down 13.7 per cent in December of 2007 while book prices and other printed materials fell by 7.7 per cent.
On a monthly basis, consumer prices edged up 0.1 per cent between November and December after climbing 0.3 per cent during the previous month.
The slowing pace of rising consumer prices was due to a deceleration in gasoline prices, which only rose 1.7 per cent in December compared to 4 per cent in November.
Women's apparel saw a 4.7 per cent decline while men paid 3.2 per cent less for clothing last month. Books and other printed materials saw a nine per cent decline in costs, excluding text books.
Statistics Canada says inflation is expected to fall again in January as the GST is cut to five per cent.
"A rough estimation of this impact is that the rate of change would be lower by 0.6 per cent than it otherwise would have been if the entire amount of the decrease were transferred to consumers through lower prices," the report reads.
