Photo: The Canadian Press. All rights reserved.

Canadian dollars (loonies) are pictured in Vancouver, B.C. Thursday, Sept. 22, 2011. THE CANADIAN PRESS/Jonathan Hayward

The Canadian dollar was weaker as data showed a sharp drop in inflation during December.

The loonie was down 0.27 of a cent to 98.6 cents US after inflation fell 0.6 per cent from November to an annualized rate of just 2.3 per cent.

Analysts had expected prices to cool in December due to Christmas season sales, but not by this much. The consensus was for a 0.4 per cent falloff.

Analysts noted that a major contributor to the decline was a 2.3 per cent drop in motor vehicle prices as manufacturers offered discounts on 2012 models.

There were also sizable drops in clothing, home entertainment equipment and household furnishings.

Lower commodity prices also weighed on the dollar.

Oil prices continued to lose ground as signs of economic improvement in the U.S. and Europe were tempered by a rise in gasoline stocks, which suggests weaker demand for crude.

The February crude contract on the New York Mercantile Exchange dropped 62 cents to US$99.77 a barrel.

Metal prices also backed away with March copper down four cents to US$3.76 a pound, almost reversing Thursday's five-cent gain.

And the February gold contract on the Nymex lost $6.70 to US$1,647.80 an ounce.