Price Index Down: 1.9%

In August, consumers paid 1.9% more than they did in August 2003 for the goods and services included in the Consumer Price Index (CPI) basket, a slowdown from the 2.3% increase registered in July. However, the 12-month variation in the All-items excluding energy index has been fairly stable, rising 1.5% in August, after increases of 1.6% in June and July.

Economists weren't expecting such a big drop in inflation. As a result of the bigger than expected decrease, the Canadian dollar fell 0.67 cents to 76.83 cents USD. Currency traders now believe that the lower-than-expected inflation rate will mean a more moderate rise in Canadian interest rates.

Stats Canada says the CPI slowdown in the 12-month change in the All-items index was essentially due to gasoline prices. The 12-month increase in gasoline prices slowed from 17.9% in July to 7.8% in August. The strong monthly increase in gasoline prices from July to August last year (+9.0%) combined with the small drop from July to August this year (-0.3%) contributed to reduce the gap between the 2003 and 2004 indexes in August compared with what it was in July.

The CPI registered a smaller 12-month increase in August than in the previous three months, increasing 1.9% compared with 2.3% in July and 2.5% in May and June. In August, upward pressure was exerted primarily by gasoline prices, homeowners' replacement cost, cigarette and restaurant meal prices, tuition fees and beef prices.

Dampening these increases were lower prices for computer equipment and supplies, automotive vehicle leasing and fresh vegetables.

The energy index rose 6.2% from August 2003 to August 2004, mostly as a result of the 7.8% rise in gasoline prices. Prices for electricity (+4.3%), fuel oil (+10.7%), natural gas (+2.4%) and fuel, parts and supplies for recreational vehicles (+5.7%) also increased.

On a monthly basis, the energy index rose 0.1% under pressure from higher natural gas (+1.5%) and electricity (+0.1%) prices. Lower prices for gasoline (-0.3%) and fuel, parts and supplies for recreational vehicles (-0.2%) dampened this increase.

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