Canada's annual inflation rate goes negative, but food prices rise

By Kelsey Johnson

OTTAWA (Reuters) - Canada's annual inflation rate fell by 0.2% in April, the first time it has turned negative since 2009, as the coronavirus pandemic slashed energy prices, but the headline figure obscured rising costs of some foods.

Analysts had forecast a negative rate of 0.1% in April, down from 0.9% recorded in March.

Statistics Canada said on Wednesday that annual inflation excluding energy prices rose by 1.6%.

Energy prices sank by 23.7% from April 2019. Gasoline prices plunged 39.3%, the largest year-over-year decline on record, on lower global demand for oil and a production war between Russia and Saudi Arabia.

But food prices rose by 3.4% in April from the year-earlier period, pushed up by demand for staples like rice (+9.2%), eggs (+8.8%) and margarine (+7.9%). On a monthly basis, household cleaning products posted a 4.6% gain.

"Prices for essentials matter more at this stage," noted Josh Nye, senior economist at RBC Economics. "In that sense, an increase in food prices in April likely hurts more than a drop in gasoline prices helps."

The Canadian dollar pared its rise, touching 1.3891, or 71.99 cents U.S., after the data.

The last time Canada recorded a negative annual inflation rate was in September 2009, when prices fell by 0.9%.

"This is not at all reflective of the pricing environment that consumers are actually facing," said Royce Mendes, senior economist at CIBC Capital Markets. "What people were buying was food, household cleaning products."

The Bank of Canada, which has slashed its key interest rate to near-zero, predicted last month that inflation would hit near 0% in the second quarter due to falling energy prices.

The CPI common measurement, which the central bank says is the best gauge of the economy's underperformance, dipped to 1.6% from 1.7%.

(Additional reporting by David Ljunggren and Steve Scherer in Ottawa and Fergal Smith and Moira Warburton in Toronto; Editing by Bernadette Baum and Paul Simao)