Canada's annual inflation rate fell further into negative territory in July, plunging to minus 0.9 per cent from minus 0.3 per cent in June, Statistics Canada reported Wednesday.

The negative number — technically, deflation — was the lowest since July 1953, when the price inflation rate was minus 1.42 per cent, compared with a year earlier.

Prices also fell on a monthly basis, dipping 0.3 per cent lower from June to July.

Gasoline prices were the biggest contributor to the deflation. In July, consumers paid 4.1 per cent less at the pump over the previous month and 28.3 per cent less, compared with last July.

The average retail price of unleaded gasoline was 97.4 cents per litre in July 2009, compared with a record high of 136.6 cents per litre in July 2008.

Food was the major contributor to upward pressure in prices, rising five per cent. That follows increases of 5.5 per cent in June and 6.4 per cent in May in the category.

Growth in food prices has been slowing since reaching a peak of 7.9 per cent in March 2009, due to the slowdown of price increases for fresh fruit and vegetables and meat.

Excluding energy, the all-items consumer price index (CPI) rose by 1.8 per cent in the 12 months to July.

Core inflation slips

The core inflation rate — which excludes the most volatile components — slipped a 10th of a percentage point from June's rate to an annual rate of 1.8 per cent.

"Core inflation will likely drift further below the central bank’s target in the year ahead, though deflation is far from a major concern with gasoline prices now on the rise," said BMO Nesbitt Burns economist Sal Guatieri.

Economists agreed that there was nothing in the StatsCan report to persuade the Bank of Canada to raise interest rates anytime soon.

"The bank [of Canada] will maintain its conditional commitment to hold on any interest rate hikes until Q2/2010," wrote TD Bank economist Grant Bishop in a commentary.

With files from The Canadian Press