Annual inflation rate eases to 0.4% in April

Lower energy costs helped Canada's annual rate of inflation cool in April to 0.4 per cent, down from the1.2 per cent 12-monthincrease in March.

Economists said the 12-month inflation rate in April was the lowest since 1994, when cigarette taxes were reduced.

Statistics Canada said Wednesday that food prices continued to putupward pressure on the consumer price index, whileprice declines for energy and reduced upward pressure from some shelter costs helped ease the overall inflation rate last month.

Food prices rose7.1 per cent during the 12-month period to April, down from the7.9 per centrise in March.

Due to a sharp drop in natural gas prices, shelter costs rose0.2 per centduring the 12-month period to April after increasing2.1 per cent in March. The 12-month change in the shelter price index has been slowing since July2008.

Transportation costs felleight per cent, thanks to year-over-year declines in prices for both gasoline and passenger vehicles.

Gasoline prices fell24.7 per centfrom April2008to April2009following a 12-month decline of21 per centin March.

The Bank of Canada's core rate of inflation, used in the setting ofmonetary policy, advanced1.8 per centover the12months to April, down from thetwo per centrise in March.

"Canadian inflation is now in full retreat, with a dip into negative headline readings due ahead even with the recent back-up in gasoline prices," said BMO Capital Markets economist Douglas Porter.

"While underlying price trends are holding firmer, they also look to wane notably, especially now that the fever in grocery prices has finally broken," he said.

Porter said the core inflation rate will remain firmer, but even that is forecast torecede. He said the Bank of Canadaexpectscore inflation to slip below one per cent in the fourth quarter, after averaging 1.6 per centin the current quarter.

"By mid-2011, the [Bank ofCanada]forecasts that both the headline and core inflation rates will be back at the two per cent target," said RBC assistant chief economist Dawn Desjardins.