Inflation remains in negative territory

Canadian consumer prices fell by 0.8 per cent in the 12 months ending August 2009 an improvement on the annual paceof 0.9 per cent in July but still below zero for the third straight month.

Though slightly better on a monthly basis, the decrease was due primarily to a 12-month drop of21.2 per centingasoline prices, Statistics Canada said Thursday.

On average it cost $1.01 a litre to fill up in August, comparedwith $1.27 at the gas pumps in the same month in 2008.

But on a monthly basis, gasoline prices were actually 2.6 per cent higher in Augustthan in July of this year.

The 0.9 per cent annual inflation rate for July was the lowest rate recorded since 1953.

Not deflation, economists argue

Excluding energy, the consumer price indexrose1.4 per centbetween August2008and August2009.

Economists do not believe Canada is experiencing deflation, a prolonged period of falling prices that can cause problems for the economy, because energy prices are thesole dominant factor in the decline.

Economistspredict inflation will return to positive territory later in the fall because the world price for crude oil has recovered from the deep declines experienced late in 2008 and early in 2009.

"Given the comparisons to last years elevated gasoline levels, CPI will remain in negative territory until the fourth quarter," CIBC economist Krishen Rangasamy said in a research note.

The primary upward pressure on the CPI came from food prices, which increasedfour per centbetween August 2008 and August 2009.

Regionally, the agency says eight provinces saw overall prices decline in August, with only Quebec and Saskatchewan bucking the trend.