OTTAWA - The strong Canadian dollar continued to eat away at Canada's inflation rate in February as prices rose a modest 1.8 per cent on an annualized basis last month, compared with 2.2 per cent in January.

This was the lowest rate of overall price increases in six months, Statistics Canada said.

The core index which the Bank of Canada uses to gauge underlying inflationary pressures rose slightly for the first time since June, to 1.5 per cent from 1.4 per cent on an annualized basis.

But the new report leaves the Bank of Canada room to keep cutting interest rates in an attempt to boost economic activity without fear of stoking inflation.

Prices fell dramatically for many items in February, particularly those influenced by the strong Canadian dollar, which continues to hover around parity with the U.S. dollar.

The cost of purchasing or leasing an automobile slid by 6.8 per cent from last year, the steepest decrease since February 1956, as a result of markdowns and discounts from carmakers.

Food was also cheaper in February, especially imported fresh produce. Fresh vegetables fell 16.9 per cent, and fresh fruit dropped 14.5 per cent, with oranges being 36.2 per cent cheaper.

As well, prices for computer equipment and supplies, particularly laptops, crashed 15.4 per cent in February, and women's clothes slipped three per cent.

{sidebar id=6}Although gasoline prices did not increase as much last month as in January, they remain the key driver of inflationary pressure.

Pump prices rose 17.1 per cent last month over a year earlier as crude oil continued to demand more on the world market that was the case last February. The cost of heating oil and other fuels jumped 23.9 per cent from last year.

Mortgage interest costs also continued to climb, as did costs of home maintenance.

Regionally, Ontario experienced the largest dip in inflation, as consumer prices fell to an annualized rate of 1.5 per cent, from 2.1 per cent in January. Inflation remained strongest in the West, with Alberta and Saskatchewan leading the way at 3.5 per cent and 3.4 per cent annualized inflation rates.

On a monthly basis, inflation advanced by 0.1 per cent in February from January of this year, and core inflation rose 0.3 per cent from last month.

Here's what happened in the provinces and territories (previous month in brackets):

Newfoundland and Labrador 2.1 (2.1)
Prince Edward Island 2.4 (2.4)
Nova Scotia 2.6 (3.1)
New Brunswick 1.9 (2.3)
Quebec 1.6 (2.0)
Ontario 1.5 (2.1)
Manitoba 1.6 (1.6)
Saskatchewan 3.4 (3.2)
Alberta 3.5 (3.6)
British Columbia 1.1 (0.8)
Whitehorse, Yukon 2.6 (3.2)
Yellowknife, N.W.T. 2.9 (2.2)
Iqaluit, Nunavut 1.8 (1.7)
The agency also released rates for major cities, but cautioned that figures may fluctuate widely because they are based on small statistical samples (previous month in brackets):

St. John's, N.L., 2.4 (2.2)
Charlottetown-Summerside, 2.4 (2.5)
Halifax, 2.5 (2.9)
Saint John, N.B., 1.8 (2.3)
Quebec, 1.7 (1.9)
Montreal, 1.6 (1.9)
Ottawa, 1.3 (1.8)
Toronto, 1.8 (2.3)
Thunder Bay, Ont., 1.0 (1.6)
Winnipeg, 1.6 (1.6)
Regina, 2.7 (2.7)
Saskatoon, 4.6 (4.3)
Edmonton, 3.9 (4.0)
Calgary, 3.0 (3.4)
Vancouver, 1.3 (1.1)
Victoria, 0.5 (0.3)

© The Canadian Press, 2008