Canada’s annual inflation rate slowed to 1.4 percent in May after gaining 1.8 percent in April due to reasonable gasoline costs and lower prices for clothing.

Statistics Canada on Tuesday said the core consumer price index that excludes eight volatile items slowed to 1.8 percent from 1.9 percent.

The Bank of Canada, Canada’s central bank had forecast in April that inflation will be “slightly higher” than its 2 percent target over the next year.

Governor Mark Carney, who had raised the bank’s key lending rate to 0.5 percent in early June, said last week that European debt crisis could dampen future inflation and that the bank needs to raise lending rates to normalize policy and rates to levels that are more consistent with a fully employed economy over the next one or two years.

Statistics Canada said retail gasoline prices increased 6.9 percent in May from a year earlier and compared with a 16 percent rate in April. The transportation index rose 4.1 percent in May after it increased 6.2 percent in April.

The report said food costs advanced 0.8 percent, the smallest increase since March 2008 and restaurant prices gained while fresh fruit and potato prices fell. Prices also increased for sugar and confectionery, and tomatoes. Clothing and footwear prices fell 1.3 percent because of lower prices for women’s and children’s items, it said.

Shelter costs rose 1.3 percent in the 12 months to May, after increasing 0.8 percent in April. Homeowner's replacement costs rose 4.4 percent following a 2.9 percent increase in April. In addition to paying higher prices for natural gas, and fuel oil and other fuels, consumers also paid more for electricity.

Consumers paid 0.9 percent more for household operations, furnishings and equipment in the 12 months to May. This increase followed a 1.1 percent rise in the 12 months to April. Higher prices were recorded for telephone services and child care, the report showed.

On the other hand, the mortgage interest cost index, which measures the change in the interest portion of payments on outstanding mortgage debt, declined 5.4 percent in May, following a 6.1 percent decrease in April.

On a monthly basis, consumer prices advanced 0.3 percent in May, unchanged from April. Core prices increased 0.3 percent for a second month. Economists predicted an advance of 0.2 percent in the monthly overall rate and a 0.3 percent rise in the monthly core rate.

Prices in the recreation, education and reading component fell 0.2 percent in the 12 months to May, which was the first decline in this index since November 2008. Prices for video equipment and computer equipment and supplies fell. However, consumers paid more for cablevision and satellite services, the report said.

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