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Consumer prices rose 1.1% in the 12 months to January 2009, slightly less than the 1.2% increase observed in December.

Compared to the same month last year, downward pressure in January came mainly from lower gasoline prices, but also from a sharp decline in the cost for purchasing and leasing passenger vehicles. Upward pressure on the all-items index came mostly from higher food and shelter prices.

The rate of change in consumer prices has been slowing since September 2008.

Gasoline prices in January 2009 were 23.5% below the level in the same month in 2008. Price declines for fuel oil and other fuels also helped moderate consumer price increases. Overall, energy prices fell 10.9% in January, nearly matching the 11.0% decline posted in December.

Food prices increased 7.3% during the 12-month period to January, identical to the increase in December. Bakery and cereal products and fresh vegetables exerted upward pressure on the food index.

Shelter costs were also a significant upward contributor to the 12-month change in consumer prices in January, especially mortgage interest payments, which rose as a result of higher housing prices and despite lower mortgage interest rates.

On a seasonally adjusted monthly basis, consumer prices fell 0.1% from December to January, following monthly declines of 0.3% in December, 0.3% in November and 0.6% in October. January’s decline reflected price decreases for transportation items, which outweighed higher prices for food. Excluding food and energy, seasonally adjusted consumer prices decreased 0.2% in January.

12-month change: Significant drop in transportation prices offsets higher food prices

Of the eight major components in the Consumer Price Index, six recorded increases in the 12 months to January: food, shelter, household operations, furnishings and equipment, recreation, education and reading, health and personal care and alcoholic and tobacco products.

The largest upward contributor to consumer prices was a sustained increase in the price of food. Excluding food, the CPI posted a decrease of 0.2% in the 12 months to January. Shelter costs followed food as the second largest upward contributor to consumer prices.

A decline in transportation prices substantially offset rising prices for food and shelter items. Continuing price declines for clothing and footwear items also helped to temper consumer price increases in the 12 months to January.

The transportation price index declined 7.5% in January; the drop in both gasoline prices and the cost of purchasing and leasing passenger vehicles were the main contributors.

The cost of purchasing and leasing passenger vehicles fell 8.2% compared to a year ago, a significantly sharper decline than the 3.5% year-over-year drop observed in December. The decline reflected manufacturer incentives provided on 2009 vehicle models in response to the current downturn in auto sales.

These declines were slightly offset by a 4.1% increase in prices for passenger vehicle insurance premiums and a 4.2% increase in air transportation costs. However, the rate of growth was slower in both indexes than in December.

Prices for food purchased from stores rose 8.6% in the 12 months to January. The main contributor was a 10.5% rise in prices for bakery and cereal products, compared with the 12.4% increase in December. Higher prices for fresh vegetables were also a significant contributor.

Fresh vegetable prices rose 19.9% in the 12 months to January, down from the 26.9% increase posted in December. January’s slowdown in fresh vegetables was due primarily to a drop in the price of tomatoes.

Shelter costs remained the second largest contributor to the increase in the CPI, rising 3.3% in the 12 months to January. The increase primarily reflected higher mortgage interest costs and natural gas prices. Overall, the rise in the cost of shelter continued to moderate from the 3.5% increase in December and the 3.9% increase in November.

Mortgage interest costs were up 5.8%, a smaller increase than the 6.4% posted in December. Natural gas prices rose 12.8% in January, also a significant slowing from the 18.4% posted in December. Prices for fuel oil and other fuels decreased at 19.0% in the 12-months to January, a faster pace of decline than the 13.5% drop observed in December.

Prices for clothing and footwear fell 0.4% in the 12 months to January. This was a much slower pace of decline than the 2.6% drop in December.

Wide variation in 12-month consumer price change among the provinces

Consumers in three Atlantic provinces saw a modest drop in consumer prices in the 12 months to January. In both Prince Edward Island and Nova Scotia, consumer prices in January 2009 were 0.1% below levels in the same month a year earlier. In New Brunswick, the 12-month decline was 0.5%.

The primary contributors to the declines in these three provinces were decreases in prices for gasoline, purchase and leasing of passenger vehicles and a decline in the 12-month price of fuel oil and other fuels. Fuel oil and other fuel products are used in greater intensity in the Atlantic provinces, resulting in a greater impact on consumer prices.

Alone among the Atlantic provinces, Newfoundland posted a 0.9% increase in consumer prices, partly the result of a rise in homeowner’s replacement costs, which represent the cost of maintaining a housing structure.

Excluding energy, consumer prices rose by 2.2% in Nova Scotia, 2.1% in New Brunswick and 2.5% in Prince Edward Island.

Elsewhere, Quebec maintained the lowest positive rate of growth in consumer prices, posting a 0.5% increase. The increase in consumer prices in Ontario slowed from 1.5% December to 1.4% in the 12-months to January.

Consumer prices increased at the fastest pace in Saskatchewan (+2.4%). Alberta experienced the most significant slowdown in consumer price increases, slowing from 1.9% in December to 1.2% in the 12-months to January. This slowdown was driven by the 12-month drop in homeowner’s replacement costs (-10.4%), a sharp contrast from the 0.2% increase at the national level.

Month-to-month seasonally unadjusted change: Fourth consecutive monthly drop in consumer prices

Consumer prices fell a further 0.3% from December to January, after falling 0.7% from November to December. This was the fourth consecutive month-to-month contraction observed in the CPI.

January’s decline was due primarily to a large drop in prices for purchase and leasing of passenger vehicles which declined 5.3% from December to January.

Price declines for natural gas (-6.0%), fuel oil and other fuels (-3.9%) and Electricity (-1.0%) also helped to ease consumer prices in January.

In contrast to the previous three month-to-month declines, gasoline prices increased 5.0% from December to January. This increase partially offset the drop in prices for passenger vehicles.

Also putting upward pressure on consumer prices in January were price increases for non-alcoholic beverages (+6.7%) and women’s clothing (+2.4%).

While all provinces except Nova Scotia (0.0%) and British Columbia (0.0%) posted a contraction in consumer prices in January, the largest declines were realized in Alberta (-0.8%), Prince Edward Island (-0.5%) and Manitoba (-0.5%).

Alberta (-0.8%) posted the sharpest monthly drop in consumer prices, as declining costs for electricity (-10.8%), natural gas (-14.7%) and homeowner’s replacement cost (-1.2%) tempered month-to-month increases in gasoline and women’s clothing.

Seasonally adjusted monthly change: A decrease from December

On a seasonally adjusted monthly basis, consumer prices in Canada fell 0.1% from December to January, following monthly declines of 0.3% in December, 0.3% in November and 0.6% in October. January’s decline reflected price decreases for purchasing and leasing of passenger vehicles, which outweighed rising food prices.

Excluding food and energy, the seasonally adjusted CPI fell 0.2% from December to January.

Bank of Canada’s core index posts 1.9% increase

The Bank of Canada's core index increased 1.9% over the 12 months to January, a slowdown from the 2.4% rise in December. Lower prices for purchasing and leasing of passenger vehicles attenuated the increase in the core index. In contrast, higher prices for bread, cereal products and meat were the primary upward contributors.

On a month-to-month basis, the core index prior to seasonal adjustment decreased 0.4% from December to January, following the 0.4% drop in the previous period. Large price declines for purchasing and leasing passenger vehicles were primarily responsible for the January decline.

The seasonally adjusted monthly core index fell 0.3% from December to January, after increasing 0.1% from November to December.